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Tranzact Financial Services Limited Annual Report 30 June 2011 For personal use only

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Page 1: For personal use only - asx.com.au · PDF fileThe Directors firmly believe the SMSF market presents a strong future growth opportunity despite the current challenges, ... Group Insurance

Tranzact Financial Services Limited

Annual Report 30 June 2011

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Page 2: For personal use only - asx.com.au · PDF fileThe Directors firmly believe the SMSF market presents a strong future growth opportunity despite the current challenges, ... Group Insurance

Report from the Chairman and Managing Director 1

Directors’ Report 5

Auditor’s Independence Declaration 16

Corporate Governance Report 17

Financial Statements 25

Directors’ Declaration 71

Independent Audit Report 72

Shareholder Information 74

Twenty Largest Shareholdings 75

Corporate Directory 76

Tranzact Financial Services Limited Annual General Meeting17 November 2011, 10.00 a.m.Level 5241 Castlereagh StreetSydney NSW

Contents

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Tranzact Financial Services Limited | Annual Report 2011 1

Report from the Chair and Managing Director

Overview of the financial yearThe Group recorded an operating profit before tax,

depreciation and amortisation (‘EBTDA’) of $2.666

million (FY2010: $2.016 million) for the year ended

30 June 2011 (‘FY2011’). The result was achieved on

operating revenue of $8.828 million (FY2010: $7.831

million) and was consistent with the earnings guidance

provided by the Board with the release of the half yearly

result in February 2011.

Net profit after tax (‘NPAT’) was $1.606 million in

FY2011 compared with $1.509 million for the previous

corresponding period.

The strong growth in EBTDA is a result of the

implementation of a restructure of the insurance

arrangements in the Smartsave ‘Member’s Choice’

Superannuation Master Plan (‘Smartsave’), which

took effect from 1 June 2010, combined with a

positive contribution following the acquisition of the

Brisbane based Templetons Group financial planning

business (‘Templetons’) on 1 October 2010. The NPAT

growth was moderated by an increase in the rate of

amortisation and the increase in taxation due to the

near exhaustion of tax credits from prior years’ losses.

The Directors are pleased with the Group’s performance

despite the continuing economic, legislative and

regulatory challenges.

Significant volatilities in global markets continue to

be features of the global financial markets. Concerns

over economic growth in the developed economies

and sovereign debt continue to trouble global share

markets leading to significant price fluctuations. Global

sharemarkets lack direction and conviction, which has in

turn inhibited investor sentiments.

In Australia, lacklustre consumer spending in an

environment where demands for the main Australian

commodity exports are at record highs probably best

illustrates the difficult economic environment. The recent

turmoil in financial markets and related focus on the

superannuation industry has also led to some proposed

legislative changes.

One of the most talked about proposed changes is

MySuper. Pursuant to that regime, it is proposed that all

investors who do not actively choose an investment option

will be automatically channelled into a default “no-frills,

low-cost” option. Although the Group supports efficient

reform of the existing superannuation regime, great doubts

remain about the ability of the MySuper regime to deliver

the changes that are required.

Ultimately, the biggest challenge for the superannuation

industry is the degree of “disengagement” and “lack of

understanding” of the average superannuation member.

This disengagement can only be addressed through

an extensive education program and the rollout of

initiatives which make quality advice accessible to all

superannuation members. Unfortunately the MySuper

regime does not appear to address these concerns

but rather seeks to rely on achieving better outcomes

for low net wealth clients by further supporting a low

cost model for superannuation funds. Relevantly, the

view that low cost superannuation funds deliver better

results is a view often put forward by the Australian

Industry Superannuation Funds yet it is not a view that is

necessarily supported by empirical evidence.

The Group continues to hold the view that successful

superannuation outcomes are only achieved through

careful planning and measured investment strategies.

This requires consultation between the superannuation

fund and the member. Unfortunately the low-cost model

does not allow for proper engagement in the consultation

process described above.

The Group also fears that the Future of Financial Advice

(“FOFA”) reforms are likely to further alienate low net

wealth clients by creating greater compliance costs for

the financial planning industry, ultimately resulting in

higher fees for investors.

Despite these challenges, the Group has continued

to focus on implementing its strategic plans. The main

focus remains on ensuring that the revenue from our

well-diversified business continues to be sustainable

and we keep good control over costs. We continue to

maintain a flexible business structure, in conjunction

with our major shareholder Grosvenor, through

resource sharing and continual upgrading of our

information technology systems.

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2 Tranzact Financial Services Limited | Annual Report 2011

Partnership for Growth

A significant milestone in the financial year was the

acquisition of Templetons. This provides the springboard

from which future expansion of the Australian Partnership

for Growth strategy can be achieved, both through

recruitment and development of quality advisers as well

as through acquisition. Despite the troubled investment

markets in the past 24 months, the business has performed

well relative to expectations. Much has been done and

achieved in terms of building a stronger foundation for

growth within the Templetons business. Acquisition

opportunities are being reviewed but a cautious approach

is being taken in the uncertain climate before the final

shape of the proposed FOFA legislative changes are fully

announced and evaluated.

The New Zealand Partnership for Growth program

continues to meet the expectations of the Board. The

ongoing expansion of the New Zealand businesses

through acquisition opportunities has resulted in a further

NZ$700,000 being invested by the Group. The largest of

the businesses in which Tranzact has an interest, Camelot

NZ Limited Partnership, is one of the largest and most

widely represented financial advisory businesses in New

Zealand. The recent changes to the regulation of financial

advisers that took full effect on 1 July 2011 have been met

positively by all Camelot advisers. Virtually all advisers have

attained full Authorised Financial Adviser status, positioning

the businesses well for the future. A small partner in the

program has left on a mutually agreeable basis and on

good terms. The realisation of the investment has resulted

in a significant capital gain (relative to investment size)

which strongly validated the Partnership for Growth model.

Master Trust

The implementation of the first phase of the restructure of

Smartsave has contributed to a substantial improvement

to the profitability of this segment in FY2011. The

appointment of a new trustee of Smartsave during the

year did, however, result in a loss of momentum in the

implementation of the next two phases of the restructure,

which was originally anticipated to take effect in the latter

part of FY2011. Whilst this delay has been frustrating to

all parties, this continues to be a key focus for the future.

The need for rationalisation is recognised by the Trustee,

Promoter and Tranzact and supported by APRA. However,

the nature of the legislative framework has meant that the

new Trustee is in effect starting from scratch. This is of

significant frustration, not just to Tranzact and the Promoter

but to advisers who support the fund as well as members

of the fund.

The rationalisation of the fund is currently the top priority

for management, and the Group is working closely with

the Promoter to evaluate all options to ensure that the

rationalisation can be effected expeditiously with the best

interest of the members in mind.

Over the course of the past year, the funds under

administration (‘FUA’) have remained stable. The Directors

are confident that the fund will be viable and attractive

to advisers and new members once the proposed

rationalisation of investments and fees has taken place.

Investment Performance and Portfolio Stewardship

For most of the year, markets maintained a generally

positive tone, as consensus forecasts supported a

continuation of the post-recession global recovery.

However as calendar 2011 unfolded, the true magnitude of

sovereign debt issues in some European countries became

more apparent. As a result, markets ended the June year

taking a significantly more risk averse view on medium term

economic prospects, based on the negative impact of the

austerity measures required to address the debt crisis.

During this challenging period, the Group retained a

cautious approach regarding its investment strategies. This

approach started to add value near the end of the year as

markets declined in response to the heightened levels of

economic uncertainties. The Group’s investment focus on

closely monitoring and managing downside risks has been

one of the key philosophical foundations upon which it has

built its consistent performance track record.

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Tranzact Financial Services Limited | Annual Report 2011 3

The table below summarises the performance over

the last year and six years in the key Australian single

and multi-sectors, versus the Morningstar peer group

averages. Maintaining top quartile performance over time

will provide a very credible foundation for the Group to

pursue ongoing growth opportunities in the provision of

asset consulting services to pooled superannuation trusts.

Sector Last

Year

Last 6

years

Defensive 4.2% 4.9%

Morningstar Median 4.8% 3.8%

Morningstar Quartile Ranking 4 1

Conservative 4.8% 4.4%

Morningstar Median 5.2% 3.9%

Morningstar Quartile Ranking 3 2

Balanced 6.2% 5.0%

Morningstar Median 6.2% 3.7%

Morningstar Quartile Ranking 3 1

Growth 7.8% 4.6%

Morningstar Median 6.8% 3.6%

Morningstar Quartile Ranking 2 1

High Growth 8.9% 4.4%

Morningstar Median 8.1% 3.3%

Morningstar Quartile Ranking 2 1

Australian Shares 10.2% 7.6%

Morningstar Median 9.3% 5.7%

Morningstar Quartile Ranking 2 1

Global Shares 7.9% 1.9%

Morningstar Median 1.8% -1.5%

Morningstar Quartile Ranking 1 1

Returns are to 30 June 2011 and are after tax and fees.

Index returns have also been adjusted for tax and fees.

Self-Managed Superannuation Funds

This segment of the business has faced some challenging

market conditions resulting in average fund balances

falling, at a time when costs of compliance continue

to increase. The reduced economic benefits of having

a Self-Managed Superannuation Fund (‘SMSF’) have

resulted in higher fund wind-ups and lower demand for

the establishment of new funds in FY2011.

The Directors firmly believe the SMSF market presents

a strong future growth opportunity despite the current

challenges, and that the Tranzact Super operation is highly

scalable once market conditions improve.

Investor Directed Portfolio Service

Following the acquisition of the interest in the Templetons

business, enhancements have been made to the

Investor Directed Portfolio Service (‘IDPS’) to provide

a more comprehensive investment management and

administration service to clients and advisers. The

Directors are confident that this will provide a suitable

platform for future growth, by providing a market

competitive investment management service as well as

reducing the administration burden on advisers, allowing

them to focus on client service and new business.

As previously signalled, the custodial service is not

considered core to the Group’s business and is currently

being scaled down. The net contribution of this service

is not material and will not have any impact on the future

prospects of the Group or the IDPS segment.

GIS Concepts

Group Insurance & Superannuation Concepts (‘GIS

Concepts’ or ‘GIS’) improved its performance significantly

during FY2011, due to the benefits of the restructure of

the insurance arrangements in Smartsave. The Directors

have been pleased with the relationship that the Group

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4 Tranzact Financial Services Limited | Annual Report 2011

has had with GIS Concepts and with the performance of

its investment. The primary focus of GIS Concepts is the

implementation of the remaining phases of the restructure

of Smartsave which will improve the marketability of

the product and the level of support from its existing

distribution networks.

The relationship we have with GIS is integral to

the longer-term strategic plans of the Group and we

are committed to growing and developing that

relationship further.

Dividend and Capital Management

The Directors are pleased to be able to announce an

increase in dividend payment (total payment of 0.70 cents

per share this year compared to 0.60 cents per share last

comparable period). This reflects the directors’ confidence

in the sustainability of the Group’s profitability despite the

background of volatile financial markets.

The Directors are also pleased to announce that

subsequent to balance date, the Group has signed a

$5 million acquisition funding facility from St George

Bank. This facility is over and above the current $3

million credit facility we have from St George Bank.

The availability of these facilities provided significant

opportunities for the Group to pursue its growth initiatives

through acquisition. Obviously, in the current uncertain

climate, the Directors will evaluate all opportunities with

due care and additional debt will only be incurred if any

potential acquisitions are integral to the strategic and long

term plans of the Group.

Summary

The Directors and senior management remain confident

about the outlook for the Group despite the ongoing

delays being experienced in the rationalisation of

Smartsave. The Group has successfully diversified

its business over the past few years within the

superannuation and investment management industry,

enabling multiple growth strategies to be pursued in

parallel. The result is a strong cash flow positive core

business that is resilient to economic cycles and market

conditions, with the strength to pursue suitable growth

opportunities as they arise.

The Directors would like to take the opportunity to

thank the shareholders for their continued support. The

Directors would also like to recognise the dedication and

efforts of all staff towards the success of the Group.

At the November 2010 Annual General Meeting Mr Phil

Harry stepped down as Chair after more than 10 years

in the role. On behalf of the Board and Management,

we express our sincere thanks to Phil for the leadership

he has shown during difficult economic conditions and

times of great change in the affairs of the Group. We are

delighted he is remaining as a director and the Group

continues to benefit from his counsel.

Anthony Ractliffe Allan YeoNon Executive Chair Managing Director

Sydney, 29 September 2011

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Tranzact Financial Services Limited | Annual Report 2011 5

Directors’ report

Your Directors present their report on the consolidated entity consisting of Tranzact Financial Services Limited (the ‘Company’), and the entities it controlled at the end of, or during, the year ended 30 June 2011 (collectively referred to as the ‘Group’).

The following persons were directors of the Company during the whole or part of the period and up to the date of this report:

Director Period of directorship

Mr P L Harry AM Director since 8 Feb 2000

Mr R L Rodgers Director since 21 Aug 2002

Mr A S T Yeo Director since 24 Nov 2003

Mr W A Ractliffe Director since 24 Nov 2003

Particulars of the Directors’ qualifications, experience, all directorships in listed public companies held for the past three years and special responsibilities are set out below.

William Anthony Ractliffe BA, BCom

Non-Executive Chair, Member of the Audit Committee, Member of the Risk and Compliance Committee

A business consultant and professional company director, Mr Ractliffe holds a Bachelor of Arts and a Bachelor of Commerce.

Mr Ractliffe is Chair of the New Zealand Export Credit Office and a director of Grosvenor Financial Services Group Ltd. Previously he was Deputy Chair of Accident Compensation Corporation (New Zealand) and before that New Zealand Chief Executive Officer of the National Mutual Group (formally known as AXA New Zealand).

Allan Seng Tong Yeo BCA (Hons), BA

Managing Director

With significant experience in the banking industry, Mr Yeo held a number of senior banking roles with Barclays Bank PLC in New Zealand,

Australia and the United Kingdom. Mr Yeo holds a Bachelor of Commerce and Administration and a Bachelor of Arts. Mr Yeo is also the Executive Chair of Grosvenor Financial Services Group Limited and a director of TriMax Assurance Services Limited, an innovative insurance joint venture company.

Phillip Lloyd Harry AM B Econ

Non-Executive Director

An accomplished businessman with significant international experience, Mr Harry holds a Bachelor of Economics from the

University of Sydney. Mr Harry is a former Chair of an international plastics group, Mulford Holdings Pty Ltd and a former president of the New South Wales Rugby Union and the Australian Rugby Union.

Richard Lynn Rodgers BCom, CA

Non-Executive Director,Chair of the Audit CommitteeMember of the Risk and Compliance Committee

With over 35 years experience in the Australian accounting industry,

Mr Rodgers, a Chartered Accountant, established his own practice in 1984 which he continues to operate today. Mr Rodgers also holds a Bachelor of Commerce. As part of his day to day business Mr Rodgers is involved in many aspects of the Australian financial and superannuation industry and is a director of a number of private companies.

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6 Tranzact Financial Services Limited | Annual Report 2011

Principal ActivitiesDuring the year the principal activities of the consolidated entity were:

– providing specialist administration services to various superannuation entities;

– operating an Investor Directed Portfolio Service and Custodial Services;

– providing Asset Consulting and Investment Management services;

– acting as a Promoter of superannuation entities;– providing financial planning and insurance services;

and – acting as an Australian Financial Services Licensee.

Dividends Paid or RecommendedA fully franked final dividend of 0.45 cents per share has been declared by the Board after the reporting period ended 30 June 2011. Refer to Note 24.

Review of OperationsThe Directors of the Company are pleased to announce an operating profit before tax, depreciation and amortisation (‘EBTDA’) of $2.666 million (FY2010: $2.016 million) for the full year ended 30 June 2011 (‘FY2011’). This represents a 32% increase over the FY2010 result and is consistent with the guidance provided by the Board with the release of the half yearly result in February 2011.

Net profit after tax attributable to shareholders increased by 6.4% to $1.606 million compared with $1.509 million for the previous corresponding period. This represents an increase in earnings per share to 1.44 cents from 1.34 cents per share for the previous corresponding period.

The strong growth in EBTDA was driven by the full year benefit of the successful restructure of the members’ insurance arrangements in the Smartsave ‘Member’s Choice’ Superannuation Master Plan (‘Smartsave’), which took effect from 1 June 2010, together with a significant positive contribution from the acquisition of the Brisbane based Templetons Group financial planning business (‘Templetons’) on 1 October 2010. Moderating these factors was the lower profit in the Self Managed Superannuation Funds (‘SMSF’) business.

Depreciation and amortisation increased by $322,000 primarily because of the commencement of amortisation of intangible assets relating to the acquisition of Templetons, as well as the commencement of amortisation on a superannuation administration agreement that was re-assessed during the year. These were both non-cash

items which largely explained the 19% increase in net cash flow from operating activities to $2.401 million from $2.012 million previously.

The strong operating cash flow highlighted the strength of the Company’s core business operations. Moreover, when assessing the underlying performance of the Company, it should be recognised that the Company’s reported earnings included non-recurring legal expenses of $288,000 compared with around $200,000 last year.

The Company’s tax expense has increased by $228,000 compared with the same period last year, due to the contribution from Templetons and the increase in non-deductible amortisation expenses. It is noted that the income tax losses available to the Company over the last several years are almost fully utilised and the Company will generate franking credits from the payment of tax which should ensure that dividends remain fully franked in the future.

Operating revenues increased 12.7% from $7.831 million to $8.828 million in the current year. The increase is consistent with the significant increase in EBTDA.

The Company’s net debt position at 30 June 2011 was $565,000. This was after investing over $4 million in the Partnership for Growth strategy this year – being a combination of the acquisition of Templetons and increased investments in the New Zealand based businesses.

The Directors are pleased with the Company’s overall performance in what have been challenging times for the financial services sector. Fortunately, whilst a significant portion of the Company’s business is located in Brisbane and there are Partnership for Growth interests represented in Christchurch, there has been no material adverse impact to the business following the severe flooding in Queensland and the earthquakes in Christchurch, New Zealand over the past 12 months.

The Directors remain confident about the future prospects for the Company in respect of each of its business segments.

Master Trust

– Total revenue from the Master Trust business of $3.823 million in FY2011 was 20.1% ahead of the previous corresponding period. EBTDA for this segment grew strongly from $428,000 in FY2010 to $801,000 in FY2011, an uplift of 87%.

– The successful completion of the members’ insurance arrangements for Smartsave was the primary driver of the substantial growth in revenue for FY2011.

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Tranzact Financial Services Limited | Annual Report 2011 7

– Total funds under management and administration (including the pooled superannuation trusts and eligible rollover fund) decreased slightly from $297 million at 30 June 2010 to $296 million at 30 June 2011. Most of the change was due to transfers of small balances to the Australian Tax Office.

– Following the completion of the first component of the rationalisation process, the Company is very focussed on the next two phases of the process, involving the re-structuring of the investment offering and the harmonisation of the members’ fee arrangements.

– The appointment during the year of a new Trustee for Smartsave, Tidswell Financial Services Limited, resulted in a delay in the restructure of the investment offering. However, the Company is committed to providing ongoing support to GIS Concepts, as promoter, and Tidswell, as Trustee, in this important initiative. It is expected that the Smartsave product offering will be significantly improved during this calendar year, although the full administration benefits may not be realised until all of the planned changes are completed, most likely to be next financial year.

Partnership for Growth

– The Partnership for Growth segment continues to perform well and returns in each of the businesses have held up well despite the ongoing market turbulence. Revenue and earnings increased significantly following a period of substantial acquisition activity in New Zealand and through the successful launch of the Partnership for Growth strategy in Australia via Templetons. The Company has enjoyed a positive association with Templetons for over five years and was very pleased with the opportunity to extend this relationship through an ownership interest under the Partnership for Growth strategy.

– The New Zealand based interests have performed well during FY2011, with continued focus on improving profitability through strategic acquisitions in the less profitable regions. Overall returns for New Zealand are approximately 13.5% based on the Company’s total investments. When combined with anticipated (and unrecognised) capital improvements in the value of the investments, the Directors are pleased that the performance of the New Zealand interests have met expectations and also encouraged by their future prospects.

– Additional acquisitions of clients’ registers were made during the year, resulting in a net increase in investments by the Company of over NZ$700,000.

The enhanced regulatory regime in New Zealand that took full effect on 1 July 2011 offers ongoing opportunities for future acquisitions, as many advisers choose to specialise or exit the industry altogether.

– The Company is pleased that virtually all of Camelot’s advisers have achieved ‘Authorised Financial Adviser’ status. Despite the obvious distraction necessitated by this achievement, the accomplishment will position Camelot well in the provision of professional financial advice to its clients in the future.

– In Australia, the investment in the Templetons insurance and financial planning business contributed net profit after tax to the Company of $168,000 after a share of one-off acquisition related costs of $77,000. This is a solid result for the first nine months since the acquisition, particularly given the disruptive nature of such a change.

– The Templetons administration and adviser services business, in which the Company has a 33.3% interest, contributed an equity accounted net loss of $40,982 after tax in the nine month period. Again, this company incurred significant one-off costs related to the change of ownership and structure. A combination of selective acquisitions and organic growth are being actively pursued to achieve a modest profit in FY2012, the first acquisition being completed in June 2011.

– The Board continues to support the Partnership growth initiative strongly and is pleased with Templetons’ fit into the Company’s business model and the overall performance of the Partnership investments to date. The Partnership strategy accounted for nearly 45% of the Company’s total EBTDA for FY2011.

Self-Managed Superannuation Funds

– As reported in the half year results, the SMSF segment of the business has faced some challenging market conditions following the global financial crisis. The average portfolio values have reduced at a time when compliance costs continue to increase, reducing the economic benefits of a SMSF. This has resulted in increased fund wind-ups and reduced demand for new funds to be established.

– The impact on revenue was a reduction of 8.7% compared with the same period last year, from $3.664 million to $3.346 million. EBTDA reduced to $583,000 from $745,000 in the previous year, although this did include the impact of significant one-off restructuring costs of over $50,000. The restructure has reduced future expected operating costs.

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8 Tranzact Financial Services Limited | Annual Report 2011

– Importantly, the Company firmly believes the SMSF business has both the capacity and opportunity to grow profitably from its existing base. Whilst the turmoil in investment markets has impacted the SMSF industry in recent times, this is still considered to be the fastest growing sector of the superannuation market.

– To improve profitability, the Company continues to promote its expertise through consulting services and is seeking growth opportunities through closer alliances with small to medium sized accounting practices which do not have the expertise in SMSF administration.

Investor Directed Portfolio Service/Custodial Services

– In line with the performance reported in the Company’s half year results, the revenue and EBTDA of the IDPS/Custodial Services division declined by 10% during FY2011. This is a reflection of the reduction in funds under management due to the challenging investment markets and economic conditions.

– The closer relationship with Templetons has improved the prospects for the IDPS service and a comprehensive, fully managed investment service was recently launched to Templetons’ clients.

– As signalled in previous reports, the custodial service is not considered core to the Company’s business and is currently being scaled down. The net contribution of this service is not material and will not have any impact on the future prospects of the Company or the IDPS segment.

GIS Concepts

– The performance of GIS Concepts improved significantly during FY2011, with the Company’s equity accounted share of net profit after tax increasing from $120,000 to $168,137. This improvement is a result of the benefits associated with the restructure of the members’ insurance arrangements in Smartsave.

– As the main promoter of Smartsave, GIS Concepts is also expected to benefit when the expected future rationalisation of the fund is implemented.

Dividend and Capital Management

The Directors are pleased to announce a fully franked final dividend for the year of 0.45 cents per share (FY2010: 0.35 cents per share), bringing total dividends for FY2011 to 0.70 cents per share (FY2010: 0.60 cents per share). The Record Date for the final dividend was 23rd September 2011 and the Payment Date will be 7th October 2011.

The Company bought back and cancelled 555,400 shares pursuant to the Company’s on market buy back program during FY2011. Additional shares have been purchased and cancelled since 30 June 2011 and this capital management programme is expected to have a favourable impact on earnings per share in the future.

Outlook

Whilst the investment markets and economic conditions are expected to remain challenging for sometime to come, the Group has a solid core business and is well positioned to benefit from its past and present strategic initiatives. The Group is poised to take advantage of suitable opportunities that will inevitably arise in such volatile times and the Directors are confident of the Group’s future prospects.

Earnings per shareFor the consolidated entity in respect of the FY2011 year of operation, the basic earnings per share was $0.014 and diluted earnings per share was $0.014 (Note 5 to the financial statements).

Significant changes in the state of affairsOther than already disclosed, there have been no other significant changes in the state of affairs of the Group.

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Tranzact Financial Services Limited | Annual Report 2011 9

Matters subsequent to the end of the financial yearSubsequent to the reporting date the Group has secured an extension to its existing banking facility with St. George for $5,000,000 for the funding of acquisitions. The Group’s total facilities now comprise of a working capital facility of $3,000,000 and a standby acquisition facility of $5,000,000. Other than this, the Directors are not aware of any matter or circumstance that has arisen that has significantly affected, or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in the financial years subsequent to 30 June 2011.

Future developments, prospects and business strategiesThe Board intends to implement the following strategies in the foreseeable future:

(a) take further strategic financial interests in profitable adviser practices;

(b) continue to grow self-managed superannuation fund services through the Group’s association with Templetons and Gold Financial Pty Ltd, and through its subsidiaries Total Super Pty Ltd and Australian Superannuation Consultants Pty Ltd;

(c) continue to market its IDPS services; and(d) grow income from the provision of planning

and insurance services though the Group’s investment in Camelot Financial Services Pty Ltd and Templetons Administrative Services Pty Ltd (collectively known as Templetons).

Information on Directors’ interestsParticulars of Directors’ interests in shares, unsecured notes and options of Tranzact Financial Services Limited as at 30 June 2011 are shown in the table below.

Director Ordinary Shares Options

Mr W A Ractliffe (2) 70,454,363 17,235,932

Mr P L Harry AM (1) 3,572,334 868,709

Mr R L Rodgers (3) 1,848,334 437,709

Mr A S T Yeo (4) 68,916,363 16,851,432

(1) A company associated with P L Harry AM, Conclude Pty Ltd, holds 1,824,000 shares and 456,000 options. Mr Harry also holds 1,748,334 shares and 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 23).

(2) A company associated with Mr Ractliffe, Gro-Aust Holdings Ltd, holds 66,717,154 shares and 16,326,004 options. In addition, Mr Ractliffe holds 1,538,000 shares and 384,500 options as trustee of the Ractliffe Australian Family Trust and 450,875 shares and 112,719 options as trustee of the Grosvenor Employee Share Scheme. Mr Ractliffe also holds 1,748,334 shares and 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 23).

(3) These holdings include 1,748,334 shares and 412,709 options held by Mr Rodgers as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 23). A further 100,000 shares and 25,000 options are held in his own name.

(4) A company associated with Mr Yeo, Gro-Aust Holdings Ltd, holds 66,717,154 shares and 16,326,004 options. In addition, Mr Yeo holds 450,875 shares and 112,719 options as trustee of the Grosvenor Employee Share Scheme. Mr Yeo also holds 1,748,334 shares and 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 23).

Board and Committee meetingsThe number of meetings of the Company’s Board of Directors and of each Board committee held during the year ended 30 June 2011, and the number of meetings attended by each Director & members were:

Directors’ Meetings Audit Committee Meetings Risk and Compliance Meetings

Director Entitled Attended Entitled Attended Entitled Attended

Mr W A Ractliffe 10 10 2 2 10 10

Mr P L Harry AM 10 10 * * ** **

Mr R L Rodgers 10 9 2 2 10 10

Mr A S T Yeo 10 10 * * ** **

* Not a member of the Audit Committee

** Not a member of the Risk and Compliance Committee

The Risk and Compliance Committee also includes 3 non-board members who attended all meetings.

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10 Tranzact Financial Services Limited | Annual Report 2011

Environmental regulationsThere are no environmental issues resulting from the consolidated entity’s activities, which are likely to affect future operations.

Remuneration report – auditedAs the whole Board currently consists of only four members, the Group does not have a separately constituted Remuneration Committee because it would not be a more efficient mechanism than the full Board for focusing the Group on specific issues. The Board has however delegated to the Managing Director the task of determining senior executive remuneration, with the exception of equity benefits which are approved by the Board.

(a) Policy for determining the nature and amount of key management personnel remuneration

The objective of the policy is to ensure remuneration is competitive and appropriate for the results delivered and aligns reward with achievement of strategic objectives and the creation of value for shareholders. Factors taken into consideration include the overall performance of the Group, particular experience of the individual concerned, level of responsibility and the demands made on the key management personnel.

As part of each executive director and executive’s remuneration package there is a performance-based component, consisting of key performance indicators (KPIs). The intention of this policy is to facilitate goal congruence between directors/executives with that of the business and shareholders. The KPIs are set annually, with a certain level of consultation with directors/executives to ensure buy-in. The measures are specifically tailored to the areas in which each director/executive is involved and has a level of control over.

Performance in relation to the KPIs is assessed annually, with bonuses being awarded depending on the number and difficulty of the KPIs achieved. Following the assessment, the KPIs are reviewed by the Board in light of the desired and actual outcomes, and their efficiency is assessed in relation to the Group’s goals and shareholder wealth before the KPIs are set for the following year. The Board has delegated to the Managing Director the task of determining the remuneration of key management personnel who are not directors. Each year in the Group’s annual report, the Board confirms the

performance evaluation was applied consistently with the policy for the reporting period.

The Board’s policy for determining the nature of remuneration for key management personnel for the Group is as follows:

Senior Executive Remuneration Policy

The Group is committed to remunerating its senior executives in a manner that is market competitive, consistent with best practice and supports the interests of shareholders. The Group aims to align the interests of senior executives with those of shareholders by remunerating senior executives through performance and long-term incentive plans in addition to their fixed remuneration.

Consequently, senior executive remuneration typically consists of the following elements:– fixed salary; – short-term incentive bonus based on performance;– long-term incentive option scheme; and– other benefits including superannuation.

Fixed Salary

The salaries of senior executives are determined from a review of the market and reflect core performance requirements and expectations. In addition, the Group considers the following:– the scope of the individual’s role;– the individual’s level of skill and experience;– the Group’s legal and industrial obligations; and– labour market conditions.

Performance Bonus

The purpose of the performance bonus is to reward actual achievement by the individual of performance objectives and for improved Group performance. Consequently, performance-based remuneration is paid where a clear contribution to successful outcomes for the Group is demonstrated and the individual attains pre-agreed key performance indicators during a performance cycle.

The pre-agreed performance measures for the Managing Director’s bonus are:– operating profit of the Group;– performance of the Group’s business units; and– general critieria including leadership, innovation,

succession planning, training and adherence to agreed culture.

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Tranzact Financial Services Limited | Annual Report 2011 11

The method of assessing if each of the above measures are met is:– Non-executive directors of the Group set the target

operating profit that has to be met;– Non-executive directors of the Group approve the

profit objectives of the business units; and – based on the discretion and judgement of non-

executive directors of the Group.

Performance measures used in determining the discretionary bonuses of other senior executives include: – operating profit;– exceeding service standards (internal and external);– attainment of relevant qualifications; – accuracy and timeliness of work outputs; and– staff development and training.

Long-Term Incentives

The Group has an option scheme that has been approved by shareholders in which senior executives may participate. The number of shares and options issued under the scheme is reasonable in relation to the existing capitalisation of the Group and all issues of options under the scheme are made in accordance with thresholds previously approved by shareholders. The issue of options is not subject to any performance conditions as they are an incentive for senior executives to remain employed with the Group.

A policy has been implemented such that participants in the TFS Group Employee Bonus and Share Scheme may not enter into derivative transactions with third parties to eliminate the performance element of the options. This rule is enforced via an annual declaration of compliance by all employees.

Other Benefits

Senior executives are entitled to statutory superannuation. By remunerating senior executives through performance and long-term incentive plans in addition to their fixed remuneration, the Group aims to align the interests of senior executives with those of shareholders and increase Group performance.

Group Performance, Shareholder Wealth and Executives’ Remuneration

The remuneration policy has been tailored to align the goals of shareholders and executives.

There have been two main methods in achieving this aim, the first being a performance-based bonus on key performance indicators, and the second being the issue of shares and options.

The Group’s performance over the last five years is shown in the table on page 12. The Board maintains promotional activity amongst analysts so as to increase investor awareness of the Group.

Non-Executive Director Remuneration Policy

The objective of the non-executive director remuneration framework is to ensure that performance is competitive and appropriate for the results delivered and aligns reward with achievement of strategic objectives and the creation of value for shareholders.

Factors taken into consideration include the overall performance of the Group, particular experience of the individual concerned, level of responsibility and the demands made on the directors.

The contracts for service between the Group and directors are on a continuing basis and are not expected to change in the immediate future. Non-executive directors are however subject to rotation requirements of the ASX listing rules and the Company’s constitution.

Non-executive directors are paid their fees out of the maximum aggregate amount approved by shareholders for the remuneration of Non-executive directors. This amount is currently $300,000 per annum.

Non-executive directors currently do not receive performance based bonuses and do not participate in equity schemes of the Group. Non-executive directors are entitled to statutory superannuation.

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12 Tranzact Financial Services Limited | Annual Report 2011

Five year Company Performance2007 2008 2009 2010 2011

Revenue $4,420,741 $5,824,646 $7,968,367 $7,831,000 $8,828,000

Net Profit $631,005 $1,754,471 $1,612,140 $1,509,000 $1,712,000

Share Price at 30 June $0.24/share $0.155/share $0.14/share $0.15/share $0.20/share

Dividends Paid – $0.0025/share $0.0035/share $0.0060/share $0.0070/share

Share Buy Back Programme – Number repurchased

– – 600,000 1,362,146 555,400

Share Buy Back Programme – Ave price per share – – $0.16/share $0.15/share $0.20/share

(b) Key management personnel

The names of persons who were key management personnel of the Group at any time during the 2011 financial year are as follows:

Name Position Held

Mr W A Ractliffe Chair – Non-Executive

Mr P L Harry AM Director – Non-Executive

Mr R L Rodgers Director – Non-Executive

Mr A S T Yeo Managing Director

Mr M Beydoun Senior Technical Manager & Company Secretary

Ms V T Luong Administration Manager

Mrs C J Dixon General Manager, Tranzact Super **

Mr G Scott * Group Chief Financial Officer

Mr D Beattie * Joint Chief Executive Officer, Grosvenor Financial Services

Mr A Wilson * Joint Chief Executive Officer, Grosvenor Financial Services

* Mr Scott, Mr Beattie and Mr Wilson are not employees of the Group but have been assigned to the Group as part of the management arrangement between the Group and Grosvenor Financial Services Group Limited from 1 July 2010.

Mr Beattie and Mr Wilson are joint Chief Executive Officers of Grosvenor Financial Services Group Limited with various responsibilities relating to the management of Tranzact Financial Services Limited.

In addition, the following persons are disclosed as they are among the 5 highest remunerated Group executives:

Name Position Held

G W Leake Senior Fund Accountant

M R Ellem Senior Manager, SMSF, Tranzact Super**

** Tranzact Super is the trading name of the combined operation of Total Super Pty Ltd and Australian Superannuation Consultants Pty Ltd.

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Tranzact Financial Services Limited | Annual Report 2011 13

(c) Details of Remuneration

Details of the compensation key management personnel and other executives of the Group are set out below:

2011 Short Term Benefits Post-employment

benefits

Long Term

Benefits

Equity Benefits

Percentage of remuneration consisting of

shares

Percentage of remuneration performance

related

Salary & Fees

Cash Bonus

Other Benefits

Super-annuation

(5) Long Service

Leave Shares (4) Options Total

Name ($) ($) ($) ($) ($) ($) ($) ($) (%) (%)

Mr W A Ractliffe 46,500 – – 4,185 – – – 50,685 – –Mr P L Harry 43,600 – – – – – – 43,600 – –Mr R L Rodgers 36,000 – – 3,240 – – – 39,240 – –Mr A S T Yeo (1) 291,007 35,000 – – – – – 326,007 – 10.7

Other key management personnelMr D Beattie (2) – – – – – – – – – –Mr A Wilson (2) – – – – – – – – – –Mr G Scott (2) – – – – – – – – – –Ms V T Luong 99,462 3,000 – 9,312 1,794 14,407 – 127,975 11.3 2.3Mr M Beydoun 115,039 3,000 – 10,804 – 14,000 – 142,843 9.8 2.1Mrs C Dixon 81,981 – – 11,473 918 10,800 – 105,172 10.3 –

Total key management personnel compensation 713,589 41,000 – 39,014 2,712 39,207 – 835,522Other executivesMr G W Leake (3) 97,539 – – 8,778 6,491 6,132 – 118,940 5.2 –Mr M R Ellem (3) 92,750 – – 9,173 – – – 101,923 – –

903,878 41,000 – 56,965 9,203 45,339 – 1,056,385 – –

(1) During the year, the independent Non-Executive Directors approved a cash bonus payment to the Managing Director.

(2) Mr Scott, Mr Beattie and Mr Wilson are not employees of the Group but have been assigned to the Group as part of the management arrangement between the Group and Grosvenor Financial Services Group Limited from 1 July 2010.

(3) Included as one of the 5 highest paid executives of the Group, although not considered part of key management personnel.

(4) These shares were acquired under the TFS Group Employee Bonus and Share Scheme. The shares only vest if the personnel remains an employee throughout the vesting period and are expensed on a pro-rata basis.

(5) This represents the expense to the Group in accordance with the accounting policy as opposed to any payments or actual leave granted to the employee.

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14 Tranzact Financial Services Limited | Annual Report 2011

2010 Short Term Benefits Post-employment

benefits

Long Term

Benefits

Equity Benefits

Percentage of remuneration consisting of

shares

Percentage of remuneration performance

related

Salary & Fees

Cash Bonus

Other Benefits

Super-annuation

Long Service

Leave Shares (4) Options Total

Name ($) ($) ($) ($) ($) ($) ($) ($) (%) (%)

Mr P L Harry 49,045 – – – – – – 49,045 – –Mr W A Ractliffe 30,000 – – 2,700 – – – 32,700 – –Mr R L Rodgers 30,000 – – 2,700 – – – 32,700 – –Mr A S T Yeo (1) 256,791 35,000 – – – – – 291,791 – 12.0

Other key management personnelMr C Yip (2) – – – – – – – – – –Ms V T Luong 57,204 4,000 – 5,958 13,375 14,324 – 94,861 15.1 4.2Mr M Beydoun 84,615 5,000 – 7,615 – 5,086 – 102,316 5.0 4.9Mrs C Dixon 42,308 – – 50,000 1,234 18,067 – 111,609 16.2 –

Total key management personnel compensation 549,963 44,000 – 68,973 14,609 37,477 – 715,022Other executivesMr G W Leake (3) 95,991 – – 8,954 636 10,499 – 116,080 9.0 –Mr M R Ellem (3) 90,300 – – 8,931 1,422 – – 100,653 – –

736,254 44,000 – 86,858 16,667 47,976 – 931,755

(1) During the year, the independent Non-Executive Directors approved a cash bonus payment to the Managing Director.

(2) Mr Yip is not an employee of the Group but had been assigned to the Group as part of the management arrangement between the Group and Grosvenor Financial Services Group Limited. This arrangement ceased on 30 June 2010.

(3) Included as one of the 5 highest paid executives of the Group, although not considered part of key management personnel, as required under the Corporations Act 2001.

(4) These shares were acquired under the TFS Group Employee Bonus and Share Scheme. The shares only vest if the personnel remains an employee throughout the vesting period and are expensed on a pro-rata basis.

(h) Service contracts

Service contracts have been entered into by the Group with all key management personnel and executives with the exception of Mr A Yeo, Mr G Scott, Mr D Beattie and Mr A Wilson who have service contracts with the parent company, Grosvenor Financial Services Group Limited. The service contracts describe the components and amounts of remuneration applicable on their initial appointment, including terms and performance criteria for performance-related cash bonuses and entitlements to equity benefits. These contracts do not fix the amount of remuneration increases from year to year. Remuneration levels are reviewed generally each year by the Managing Director in the absence of a Remuneration Committee to align with changes in job responsibilities and market salary expectations. All service contracts are for an ongoing period which can be terminated by either party giving a minimum of 4 weeks notice. No service contract provides for a payment on termination.

End of Audited Remuneration Report

(d) Cash bonuses

During the year, cash bonuses were approved for the Managing Director and other key management personnel. These bonuses were granted on 30 June 2011 in relation to the 2011 financial year and were in recognition of the Group achieving performance objectives and individuals achieving pre-agreed key performance indicators. The quantum of each bonus is discretionary and approved in accordance with the remuneration policy contained in this report.

(e) Share-based payments

Share-based payments made to key management personnel and executives as compensation during the financial year are shown in the above table.

(f) Options and rights granted as remuneration

No options or rights were granted to key management personnel and executives as remuneration during the financial year.

(g) Equity instruments issued on exercise of remuneration options

During the period no equity instruments were issued on the exercise of remuneration options previously granted as compensation to key management personnel.

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Tranzact Financial Services Limited | Annual Report 2011 15

Share options

Unissued ordinary shares of Tranzact Financial Services Limited under option at the date of this report are as follows:

Date options granted

Expiry Date Issue price of shares

Number under option

14 May 2010 31 October 2012 $0.25 27,953,049

No share options were granted up to the date of this report to any Directors or executives.

Indemnification and insurance of officers or auditor

The Group indemnifies all current and former Officers of the Group against any liability to another person (other than the Group or its related bodies corporate) unless the liability arises out of conduct involving lack of good faith.

The Group also indemnifies all current and former Officers of the Group against any liabilities or expenses incurred in defending proceedings except proceedings in which the person is found guilty or which arise out of conduct involving lack of good faith.

During the year ended 30 June 2011 the Group paid a premium of $33,927 to insure the Officers of the Group.

The Officers of the Group at 30 June 2011 were: – W Anthony Ractliffe Non-Executive Chair– Phillip L Harry AM Non-Executive Director– Allan S T Yeo Managing Director – Richard L Rodgers Non-Executive Director– Maan Beydoun Company Secretary

The liabilities insured include costs and expenses that may be incurred in defending civil or criminal proceedings that may be brought against the Officers in their capacity as Officers of entities in the consolidated entity.

Proceedings on behalf of the CompanyNo person has applied for leave of court to bring proceedings on behalf of the Group, or intervene in any proceedings to which the Group is a party for the purpose of taking responsibility on behalf of the Group for all or any part of those proceedings. The Group was not a party to any such proceedings during the year.

Audit committeeAt the date of this report Tranzact Financial Services Limited has a formally constituted Audit Committee of the Board of Directors.

Corporate governanceA statement of the Group’s corporate governance standards is set out on pages 17 to 23 of this Annual Report.

Non-audit servicesThe auditors, BDO, did not perform any non-audit services during the period.

Auditor’s independence declarationA copy of the auditor’s independence declaration under Section 307C of the Corporations Act 2001 in relation to the audit for the financial year is on page 16 and forms part of the Directors’ Report.

This Directors’ Report is signed on behalf of, and in accordance with, a resolution of the Directors made pursuant to Section 298(2) of the Corporations Act 2001.

W A Ractliffe Non-Executive Chair

Allan S T YeoManaging Director Sydney, 29 September 2011

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Tranzact Financial Services Limited | Annual Report 2011 17

The Board is committed to implementing the highest standards of corporate governance in accordance with stakeholder expectations.

1. Board of Directors

1.1 Role and Responsibilities of the Board

The Board is responsible to its shareholders for the overall governance of the Company and Group with the main role of the Board being to drive the performance of the Group.

In general, the Board is responsible for, and has the authority to determine, all matters relating to the policies, practices, management and operations of the company. It is required to do all things that may be necessary to be done in order to carry out the objectives of the Group.

Without intending to limit this general role of the Board, the principle functions and responsibilities of the Board include the following:

i. Leadership of the Group: Overseeing the Company and establishing codes that reflect the values of the Group and guide the conduct of the Board, management and employees.

ii. Strategy Formulation: Set and review the overall strategy and goals for the Group and ensuring that there are policies in place to govern the operation of the Group.

iii. Overseeing Planning Activities: Overseeing the development of the Group’s strategic plan and approving that plan as well as the annual and long-term budgets.

iv. Shareholder Liaison: Ensuring effective communications with shareholders and promoting participation at general meetings of the Company.

v. Monitoring, Compliance and Risk Management: Overseeing the Group’s risk management, compliance, control and accountability systems and monitoring and directing the financial and operational performance of the Group.

vi. Group Finances: Approving material expenses in excess of those approved in the annual budget and approving and monitoring acquisitions, divestitures, financial and other reporting.

Corporate Governance Report

The Board must also ensure that the Group complies with all of its contractual, statutory and any other legal obligations, including the requirements of any regulatory body. To assist the Board with carrying out its functions, the Group has developed a Code of Conduct to guide the Directors in the performance of their roles. See section 3 below for further information on the Group’s Code of Conduct.

1.2 Composition of the Board

To add value to the Group the Board has been formed so that it has effective composition, size and commitment to adequately discharge its responsibilities and duties. The names of the Directors and their qualifications, along with the term of office held by each of the Directors, are stated on page 5 in this latest annual report. Directors are appointed based on the specific governance skills required by the Group and on the independence of their decision-making and judgement. The Board is required to have an appropriate mix of skills to assist it to adequately discharge its responsibilities. This mix of skill is achieved by having at least one director with a legal skill set, at least one director with a financial skill set and each of the other directors having one or more of the following skills: legal; financial; operational; and business knowledge.

The Group recognises the importance of non-executive directors and advice that non-executive directors can offer. Mr Phillip Harry AM, Mr Richard Rodgers and Mr Anthony Ractliffe are all non-executive directors. In addition to being non-executive directors, Mr Phillip Harry AM and Mr Richard Rodgers also meet the following criteria for independence adopted by the Company.

An independent director:

i. is a non-executive director;

ii. is not a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company (‘substantial holding’ is considered to be a holding of more than 5% of issued share capital consistent with Section 9 of the Corporations Act 2001);

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18 Tranzact Financial Services Limited | Annual Report 2011

iii. within the last three years, has not been employed in an executive capacity by the Company or its subsidiaries, or been a director after ceasing to hold any such employment;

iv. within the last three years has not been a principal of a material professional adviser or a material consultant to the Group or an employee materially associated with the service provider;

v. is not a material supplier or customer of the Group, or an officer of or otherwise associated directly or indirectly with a material supplier or customer;

vi. has no material contractual relationship with the Group other than as a director of the Company;

vii. has not served on the Board for a period which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company or Group; and

viii. is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Group.

The Board has adopted the policy that the Chair should in all but exceptional circumstances be an independent director and that the Chair should not hold the position of Chief Executive Officer. The appointment of Mr Anthony Ractliffe (who is not an independent director) as Chair was made in light of this policy and the Board is satisfied that Mr Ractliffe’s significant experience in the industry outweighs the policy of independence of the Chair.

The Board acknowledges that whilst there is not a majority of independent directors, whenever the Board considers a matter may give rise to a potential conflict of interest, the conflicted director(s) are required to abstain from the decision. Further to this, every Board meeting must include one independent director to form a quorum. As a result, the Board is comfortable with its current composition.

1.3 Board Policies

1.3.1 Conflicts of Interest Directors must:

i. disclose to the Board actual or potential conflicts of interest that may or might reasonably be thought to exist between the interests of the director and the interests of any other parties in carrying out the activities of the Group; and

ii. if requested by the Board, within seven days or such further period as may be permitted, take such necessary and reasonable steps to remove any conflict of interest.

If a director cannot or is unwilling to remove a conflict of interest then the director must, as per the Corporations Act 2001, be absent from the room when discussion and/or voting occurs on matters about which the conflict relates.

1.3.2 Commitments Each member of the Board is committed to

spending sufficient time to enable them to carry out their duties as a director of the Company.

1.3.3 Confidentiality In accordance with legal requirements and agreed

ethical standards, Directors and key executives of the Company and Group have agreed to keep confidential, information received in the course of exercising their duties and will not disclose non-public information except where disclosure is authorised or legally mandated.

1.3.4 Continuous Disclosure The Board has designated the Company

Secretary as the person responsible for overseeing, coordinating disclosure of information and communicating to the Australian Stock Exchange (‘ASX’). In accordance with the ASX Listing Rules the Company immediately notifies the ASX of information:

i. concerning the Company or wider Group that a reasonable person would expect to have a material effect on the price or value of the Company’s securities; and

ii. that would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the Company’s securities.

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Tranzact Financial Services Limited | Annual Report 2011 19

1.3.5 Education and Induction New directors undergo an induction process in

which they are given a full briefing on the Group. This includes meetings with key executives, tours of the premises, an induction pack and presentations. In order to achieve continuing improvement in the performance of the Board, all directors are encouraged to undergo continual professional development. Specifically, directors are provided with the resources and training to address skill gaps where they are identified.

1.3.6 Independent Professional Advice The Board collectively and each director (with the

prior approval of the Chair) has the right to seek independent professional advice at the Group’s expense to assist them to carry out their duties and responsibilities.

1.3.7 Related Party Transactions Related party transactions include any financial

transaction between a director and the Group and will be reported in writing at each Board meeting. Unless there is an exemption under the Corporations Act 2001 from the requirement to obtain shareholder approval for the related party transaction, the Board cannot approve the transaction.

1.3.8 Shareholder Communication The Company respects the rights of its

shareholders and to facilitate the effective exercise of those rights the Group is committed to:

i. communicating effectively with shareholders through releases to the market via the ASX and notice of general meetings of the Company;

ii. giving shareholders ready access to balanced and understandable information about the Group and corporate proposals;

iii. making it easy for shareholders to participate in general meetings of the Company; and

iv. requesting the external auditor to attend annual general meetings and be available to answer shareholder questions about the conduct of the relevant audit and the preparation and content of the resulting auditor’s report.

Contact details for shareholders to make enquiries of the Group are found on page 76 of this annual report.

1.3.9 Securities Trading Policy Tranzact is a listed public company which means

its shares are publically traded on the ASX. This means, it is important that prescribed persons (including directors and employees) take care in the timing of any dealing in the Company’s securities. The purpose of the Securities Trading Policy is:

i. to assist those persons to avoid conduct known as “insider trading” (or “insider dealing”); and

ii. to protect the Company against potentially damaging adverse inferences being drawn that its senior officers and personnel may have engaged in unlawful activity, or acted for their personal benefit using information not available to the public.

For these reasons, the Securities Trading Policy extends in some respects beyond the strict legal requirements in Australia. The Securities Trading Policy outlines the rules which must be followed by prescribed persons, as defined in the Securities Trading Policy, who wish to deal in the Company’s securities, including a mandatory prior notification and approval process.

A copy of the Securities Trading Policy is available from the Company’s website at www.tranzact.com.au.

1.3.10 Performance Review/Evaluation The Board considers the ongoing development

and improvement of its own performance and of its senior executives as a critical input to effective governance. While the Board is committed to accountability, the financial performance of the Group over recent years, along with the recent changes in the composition of the Board and with the implementation of a new business strategy, has resulted in a significant level of effort being made by the Board over recent times. As a result, the Board has traditionally used informal, ongoing assessments to evaluate its performance. However, a formal evaluation was conducted by the Board during the financial reporting year ended 30 June 2011. F

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20 Tranzact Financial Services Limited | Annual Report 2011

1.3.11 Risk Management The Board has overall responsibility for the system

of risk management, compliance and internal controls across the business to ensure the material business risks have been addressed. The material business risks of the Group fall into the following categories: – strategic risk

– operational risk – financial and market risk (including financial

reporting) – product risk – legal and regulatory compliance risk

A Risk and Compliance Committee supports the Board by monitoring and reviewing the effectiveness of the risk management internal control environment. An Audit Committee supports the Board by its oversight of the Company’s financial reporting obligations. These measures provide additional assurance to the Board that risks are being effectively managed. The management of the Group are charged by the Board to design and implement an appropriate risk management and control environment for the Group. The Board receives regular reporting from management as to the effectiveness of the Group’s management of its material business risks.

1.3.12 Assurance by Managing Director and Group Chief Financial Officer

In accordance with the Board’s policy and section 295A of the Corporations Act 2001, prior to the Board signing any financial report, the Managing Director and the Group Chief Financial Officer report in writing to the Board that in their opinion the consolidated financial statements of the Company and its controlled entities for each half and full financial year present a true and fair view, in all material respects, of the Group’s financial condition and operational results and are in accordance with accounting standards.

The Managing Director and the Group Chief Financial Officer also confirm that their declaration is founded on a sound system of risk management and internal controls, and that the system is operating effectively in all material aspects in relation to financial reporting risks.

1.3.13 Appointment of External Auditors Whilst the Board has not formally adopted a policy

for the selection and appointment of external auditors, each year the Board (through the Audit Committee) considers the following factors when appointing the external auditor;

– their competence in their role; – the constructive nature of the relationship with

the external auditor; – the value for money of the services received;

and – the absence of any conflicts that may impact

their independence in the future. The Audit Committee receives assurances from the

appointed external auditor that they meet all applicable independence requirements in accordance with the Corporations Act 2001 and any applicable code of professional conduct. This independence declaration is found on page 16 of this annual report.

The Audit Committee will consider the need for the rotation of the lead audit engagement partner by applying the same criteria as for the selection of the external audit firm.

2 Board Committees

2.1 Audit Committee

The Audit Committee was established on 8 February 2000. Below is a summary of the role, composition and responsibilities of the Audit Committee.

2.1.1 Role The Audit Committee is responsible for reviewing

the integrity of the Company’s financial reporting and overseeing the external audit of the Group.

2.1.2 Composition The Audit Committee currently consists of two

members. Members are appointed by the Board from amongst the non-executive directors, a majority of whom are also independent if possible. The current members of the Audit Committee are Mr Richard Rodgers (Chair) and Mr Anthony Ractliffe. Both members can read and understand financial statements and are financially literate and Mr Rodgers, the Chair, is a qualified accountant with experience in tax, financial and accounting matters. Details of the members’ qualifications can be found on page 5 or on the Company’s website at www.tranzact.com.au. Given the substantial

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Tranzact Financial Services Limited | Annual Report 2011 21

experience of the two members of the Audit Committee, the Board is satisfied the Audit Committee can adequately discharge its responsibilities, even though the ASX recommends an Audit Committee should have at least three members. Whilst the Audit Committee does not have a majority of independent directors, the Chair holds the casting vote, with the effect that this acts as a majority representation.

2.1.3 Responsibilities

The Audit Committee reviews the annual and half-yearly financial statements and any reports which accompany published financial statements and recommends to the Board whether the financial statements and reports should be signed. The Audit Committee also recommends to the Board the appointment, removal and remuneration of the external auditor including the rotation of external audit engagement partners. The Audit Committee is no longer responsible for assisting the Board with internal controls and risk management as this responsibility sits with the Risk and Compliance Committee.

A copy of the Audit Committee Charter is available on the Company’s website at www.tranzact.com.au.

2.2 Risk and Compliance Committee

The Risk and Compliance Committee was established on 23 October 2009. Below is a summary of the role, composition and responsibilities of the Risk and Compliance Committee. Further details are contained in the Risk and Compliance Committee’s Charter.

2.2.1 Role The Risk and Compliance Committee is

responsible for the functions of risk management, compliance, controls and procedures, internal audit and such other functions as determined by the Board from time to time.

2.2.2 Composition The Risk and Compliance Committee is comprised

of five members who are appointed by the Board, being two directors, two members of senior management staff and an external legal adviser. As at the date of this annual report the members of the Risk and Compliance Committee were Mr Richard Rodgers (Chair) and Mr Anthony Ractliffe (who are both directors of the Board), Mr Maan Beydoun (Company Secretary and

Senior Technical Manager), Mr Gary Scott (Group Chief Financial Officer and Head of Risk and Compliance) and Mr Phil Logan (external legal adviser). All members have experience in the areas of law, risk management and/or compliance, and have extensive experience in the financial services industry.

2.2.3 Responsibilites The Risk and Compliance Committee is

responsible to the Board for: – the risk management framework and

ensuring compliance with the framework and appropriate management of the key business risks;

– monitoring the extent of compliance by the Group and report to the Board on any serious breaches;

– assess the adequacy of the compliance framework and encourage a compliance culture;

– evaluate the adequacy and effectiveness of the Group’s operating policies and procedures and review and approve any significant changes to these policies;

– review any incidents and breaches; – monitor the implementation of any remedial

action following incidents or breaches; – determine the scope and work plans of any

internal audit review; – provide advice and recommendations to the

Board on matters arising from any internal audit review; and

– monitor and manage the rectification of any findings arising from any internal audit review.

A copy of the Risk and Compliance Committee Charter can be obtained by contacting the Company Secretary.

2.3 Remuneration Committee

As the Board currently consists of only four members, there is no separately constituted remuneration committee because it would not be a more efficient mechanism than the full Board for focusing the Group on specific issues. The Board has however delegated to the Managing Director the task of determining senior executive remuneration with the exception of equity benefits, which are approved by the Board. Below is a summary of the remuneration policy.

For further information on remuneration policies, refer to the remuneration report on pages 10 to 14.

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22 Tranzact Financial Services Limited | Annual Report 2011

2.4 Nomination Committee

As the Board consists of four members only, there is no nomination committee because it would not be a more efficient mechanism than the full Board focusing on specific issues. The Board takes on the role and responsibilities for receiving, assessing and recommending, where appropriate, nominees for appointment to the Board. All non-executive directors are subject to re-election and to the ASX Listing Rules and Corporations Act 2001 provisions concerning appointment and removal of a director.

2.4.1 Criteria for selection of Directors Directors are appointed based on the specific

governance skills required by the Group. Given the size of the Group and the business that it operates, the Company aims at all times to have at least two directors with experience in the financial services industry. In addition, directors should have the relevant blend of personal experience in:

– accounting and financial management; and/or

– legal skills; and/or – Chief Executive Officer level business

experience.

2.4.2 Procedure for selection and appointment and Re-election of Directors

The Directors actively seek potential new directors to join the Board who have relevant commercial and governance experience and would have a strong cultural fit with the Group’s values. Any new director must, in the opinion of the Board, genuinely be able to add value. Any potential directors that the Board considers meet the criteria would be nominated for election at the next relevant annual General Meeting.

In accordance with the constitution, a minimum of one third of incumbent directors (excluding the Managing Director) are required to retire each year. Directors may be re-elected for a subsequent term, which is to be no more than three years.

3 Code Of Conduct

As part of its commitment to recognising the legitimate interests of stakeholders, the Group has established and adopted a Code of Conduct to guide compliance with legal and other obligations to legitimate stakeholders. These stakeholders include employees, clients, customers, government authorities, creditors and the community as whole.

The Group’s Code of Conduct includes the following:

Responsibilities to Shareholders and the Financial Community Generally

The Group complies with the spirit as well as the letter of all laws and regulations (including the ASX Listing Rules) that govern shareholders’ rights. The Group has processes in place designed to ensure the truthful and factual presentation of the Group’s financial position and prepares and maintains its accounts fairly and accurately in accordance with the generally accepted accounting and financial reporting standards.

Responsibilities to Clients, Customers and Consumers

Employees have an obligation to use their best efforts to deal in a fair and responsible manner with each of the Group’s clients, customers and consumers. The Group is committed to providing clients, customers and consumers with fair value.

Employment Practices

The Group endeavours to provide a safe workplace in which there is equal opportunity for all employees at all levels. The Group does not tolerate the offering or acceptance of bribes or the misuse of Group assets or resources.

Obligations Relative to Fair Trading and Dealing

The Group aims to conduct its business fairly and to compete ethically and in accordance with relevant competition laws. The Group strives to deal fairly with its customers, suppliers, competitors and employees and encourages its employees to strive to do the same.

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Responsibilities to the Community

As part of the community the Group is committed to conducting its business in accordance with applicable environmental laws and regulations.

Responsibility to the Individual

The Group is committed to keeping private information collected from employees, clients, customers, consumers and investors confidential and protected from uses other than those for which it was provided.

Conflicts of Interest

Employees and directors must avoid conflicts as well as the appearance of conflicts between personal interests and the interests of the Group.

How the Group Complies with Legislation Affecting its Operations

Within Australia, the Group strives to comply with the spirit and the letter of all legislation affecting its operations. Outside Australia, the Group will abide by local laws in all countries in which it operates. Where those laws are not as stringent as the Group’s operating policies, Group policy will prevail where relevant.

How the Group Monitors and Ensures Compliance with its Code

The Board, management and all employees of the Group are committed to implementing the Code of Conduct and each individual is accountable for such compliance. Disciplinary measures may be imposed for violating the Code of Conduct.

Diversity

The Group recognises that a diverse workforce is encouraging and positive for both employees and the business. There is an increasing drive on diversity within organisations with a particular focus on gender and age, and work and career flexibility.

The Group and its Board members’ mission statement is to respect the dignity of all employees, their beliefs, feelings and privacy, without distinction, exclusion, or preference based on race, national or social origin, religion, political affiliation, gender or any other form of personal identity that could impact or alter equal opportunities or treatment at work.

The Board does not endorse participation quotas of any kind but is supportive in ensuring the Group nurtures and develops the collective relevant skills and diverse experience and attributes of personnel within the Group. To date the Group has been fortunate to have a diverse gender and cultural background of its employees.

The Group has a Diversity policy and measurable objectives in place for the year ending 30 June 2012.

A copy of the Diversity policy is available on the Company’s website at www.tranzact.com.au.

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24 Tranzact Financial Services Limited | Annual Report 2011

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FINANCIAL STATEMENTS

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Statement of Comprehensive Income for the year ended 30 June 2011

Tranzact Financial Services Limited ABN 84 089 997 731

Consolidated Entity

Note2011

$’000 2010

$’000

Revenue 2 8,828 7,831Other income 2 36 41

8,864 7,872

Less: Expenses Service expenses 1,496 1,456Occupancy costs 362 353Administration expenses 1,186 1,266Employee benefits expense 3,087 2,895Amortisation and depreciation expenses 752 430Financing costs 143 57Share of net (profit) after tax of associates (128) (120)

3 6,898 6,337

Profit before Income Tax Expense 1,966 1,535Income tax expense 4 254 26

Profit for the year 1,712 1,509

Other Comprehensive Income – –

Total Comprehensive Income for the year 1,712 1,509

Profit for the year is attributable to:Owners of the company 1,606 1,509Non-controlling interests 106 –

1,712 1,509Total Comprehensive Income for the year is attributable to:Owners of the company 1,606 1,509Non-controlling interests 106 –

1,712 1,509

Note

Consolidated2011$’000

Consolidated2010$’000

Earnings per ShareBasic earnings per share 5 0.0144 0.0134Diluted earnings per share 5 0.0144 0.0134

Dividends per share 24 0.0070 0.0060

The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.

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Tranzact Financial Services Limited | Annual Report 2011 27

Statement of Financial Position as at 30 June 2011

Tranzact Financial Services Limited ABN 84 089 997 731

Consolidated Entity

Note 2011

$’000 2010

$’000

Current Assets

Cash & cash equivalents 7 811 2,093

Trade & other receivables 8 1,136 801

Prepayments 9 109 46

Total Current Assets 2,056 2,940

Non-Current Assets

Property, plant and equipment 10 531 343

Financial assets 11 5,551 5,214

Investments accounted for using the equity method 12 1,618 1,249

Intangible assets 13 9,993 7,208

Deferred tax assets 14 243 159

Total Non-Current Assets 17,936 14,173

Total Assets 19,992 17,113

Current Liabilities

Trade & other payables 16 989 1,025

Derivatives 17 117 105

Current tax liabilities 341 108

Total Current Liabilities 1,447 1,238

Non-Current Liabilities

Trade & other payables 16 – 9

Provisions 18 159 93

Interest bearing liabilities 15 1,376 –

Deferred Tax Liabilities 20 656 300

Total Non-Current Liabilities 2,191 402

Total Liabilities 3,638 1,640

Net Assets 16,354 15,473

Equity

Issued capital 21 19,775 19,853

Accumulated losses (3,594) (4,424)

Reserves 22 40 44

Capital and Reserves attributable to owners of the Company 16,221 15,473

Non-controlling Interest 133 –

Total Equity 16,354 15,473

The above Statement of Financial Position should be read in conjunction with the accompanying notes.

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28 Tranzact Financial Services Limited | Annual Report 2011

Statement of Changes in Equity for the year ended 30 June 2011

Tranzact Financial Services Limited ABN 84 089 997 731

Consolidated

IssuedCapital

$’000

EmployeeOptions Reserve

$’000

Other Reserve

$’000

Accumulated Losses

$’000Total

$’000

Non-controlling

interest$’000

Total Equity$’000

As at 30 June 2009 20,047 35 40 (5,283) 14,839 – 14,839Profit for the year – – – 1,509 1,509 – 1,509Total comprehensive income for the year – – – 1,509 1,509 – 1,509

Transactions with owners in their capacity as ownersShares issued during the year 6 (4) – – 2 – 2Dividends paid – – – (677) (677) – (677)Share buy-back (200) – – – (200) – (200)Share options expired – (27) – 27 – – –

As at 30 June 2010 19,853 4 40 (4,424) 15,473 – 15,473

Profit for the year – – – 1,606 1,606 106 1,712Total comprehensive income for the year – – – 1,606 1,606 106 1,712

Transactions with owners in their capacity as ownersShares issued during the year 8 (4) – (4) – – –Share buy-back (86) – – – (86) – (86)Dividends paid – Tranzact Financial Services – – – (667) (667) – (667)Dividends paid – non-controlling interests – – – – – (78) (78)Transactions with non-controlling interests – – – (105) (105) 105 –

As at 30 June 2011 19,775 – 40 (3,594) 16,221 133 16,354

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.

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Tranzact Financial Services Limited | Annual Report 2011 29

The above Statement of Cash Flows should be read in conjunction with the accompanying notes.

Statement of Cash Flows for the year ended 30 June 2011

Tranzact Financial Services Limited ABN 84 089 997 731

Consolidated Entity

Note 2011$’000

2010$’000

Cash Flows from Operating ActivitiesReceipts from customers 8,737 8,553Payments to suppliers and employees (6,682) (6,893)Distributions and interest received 712 703Interest and other finance costs paid (143) (57)Income taxes paid (223) (294)

Net cash inflow from operating activities 32 2,401 2,012

Cash Flows from Investing ActivitiesPayments for property, plant & equipment (313) (31)Equity accounted dividend received 150 112Net loans/advances to adviser practices (1,563) (181)Net loans/advances to related parties (180) –Payments for the acquisition of controlled entities, net of cash acquired 29 (2,600) –Payments for the acquisition of associated entities (391) (160)Proceeds from the disposal of adviser practices 999 –Payments for acquisition of intangible assets (333) –Payments for purchases of software licenses – (54)Payments for acquisition of financial licenses – (54)

Net cash (outflow) from investing activities (4,231) (368)

Cash Flows from Financing ActivitiesProceeds from share issues 3 2Payments for shares repurchased (86) (200)Proceeds from borrowings 2,676 –Repayment of borrowings (1,300) (1,138)Dividend paid (745) (678)

Net cash inflow/(outflow) from financing activities 548 (2,014)

Net (decrease) in cash held (1,282) (370)Cash at the beginning of the financial year 2,093 2,463

Cash at the end of the financial year 7 811 2,093

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1. Statement of Significant Accounting Policies

Corporate Information

These general purpose financial statements have been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial statements comply with Australian Equivalents to International Financial Reporting Standards (AIFRS) in their entirety. Compliance with AIFRS ensures that the financial statements comply with International Financial Reporting Standards.

The financial statements of Tranzact Financial Services Limited for the year ended 30 June 2011 were authorised for issue in accordance with a resolution of the directors on 29 September 2011 and covers the consolidated entity consisting of Tranzact Financial Services Limited and its subsidiaries as required by the Corporations Act 2001.

Separate financial statements for Tranzact Financial Services Limited as an individual entity are no longer presented as a consequence of a change to the Corporations Act 2001, however limited financial information for Tranzact Financial Services Limited as an individual entity is included in Note 33.

Tranzact Financial Services Limited is a listed public company, incorporated and domiciled in Australia.

The financial statements are presented in Australian currency.

The following is a summary of the significant accounting policies adopted by the Company in the preparation of the accounts. Unless otherwise stated, the accounting policies are consistent with those of the previous year.

Basis of Preparation

The financial statements have been prepared on an accrual basis and are based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Accounting Policies

(a) Principles of Consolidation Tranzact Financial Services Limited and its subsidiaries together are referred to in these financial statements as the Group or

the consolidated entity. Subsidiaries are entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one-half of the voting rights. A list of subsidiaries is contained in Note 28 to the financial statements.

Where subsidiaries have entered or left the consolidated entity during the year or comparative year, their operating results have been included from the date control was obtained or until the date control ceased. The effects of all transactions between entities in the consolidated entity are eliminated in full.

The Group has financial interests in New Zealand advisory practices through Camelot Financial Advisers Limited (Camelot). The Group has no influence over the business operations or decisions of the advisory practices. Camelot was set up to source funding for selected advisers to aid them in their growth initiatives. These “Partnership for Growth” financial interests are arranged through loans from a Tranzact subsidiary to Camelot, and the underlying interests are treated as Available for Sale assets (refer Note 11).

(i) Accounting for Associates Investments in associated entities by the Group are accounted for using the equity method of accounting in the

consolidated financial statements. Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% to 50% of the voting rights, with the exception of financial interests in Partnership for Growth investments (refer to Critical Accounting Estimates and Judgements).

Investments in associated entities are carried in the consolidated Statement of Financial Position at cost plus post-acquisition changes in the share of net assets of the associate, less any impairment in value. The Statement of Comprehensive Income reflects the share of the results of operations of the associate. The Group’s share of losses in the associate is limited to the investment in the associate unless it has incurred obligations or made payments on behalf of the associate

(b) Property, Plant and Equipment Property, plant and equipment are measured on a historical cost less depreciation basis.

The carrying amount of property, plant and equipment is reviewed annually by the Directors to ensure it is not in excess of recoverable amount. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

Notes to the Financial Statements for the year ended 30 June 2011

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Depreciation

The depreciable amount of all fixed assets and capitalised leased assets is depreciated on a straight-line basis over their estimated useful lives from when the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are: Plant and Equipment 5-40% Leased Plant and Equipment 20% Leasehold Improvements 25-33% Motor Vehicle 12.50%

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than the recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the profit or loss.

(c) Income Tax The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed

items and utilised tax losses. It is calculated using the tax rates that have been enacted or are substantially enacted at the end of the reporting period.

Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit and loss.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the asset is realised or liability is settled. Deferred tax is credited in profit or loss except where it relates to items that may be credited directly to equity, or other comprehensive income, in which case the deferred tax is adjusted directly against equity or other comprehensive income.

Deferred income tax assets are recognised to the extent that it is probable that future profits will be available against which deductible temporary timing differences can be utilised.

Tranzact Financial Services Limited, as the parent entity, and its subsidiaries implemented the tax consolidation legislation as of 1 July 2002. Each entity in the Group recognises its own current and deferred tax assets and liabilities. Such taxes are measured using the stand-alone taxpayer approach to allocation. The current tax liability for each entity in the Group is subsequently assumed by the parent entity, and becomes a liability of the parent entity.

(d) Employee Benefits Provision is made for the Company’s liability for employee benefits arising from services rendered by employees to the end

of the reporting period.

Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus on costs. Employee benefits expected to be paid later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

A provision is recognised for employee entitlements relating to long service and annual leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data.

Long Service Leave

Liabilities for long service leave are recognised as part of the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees to the end of the reporting period using the projected unit credit method. Consideration is given to expected future salaries and wages levels, experience of employee departures and periods of service. Expected future payments are discounted using national government bond rates at the end of the reporting period with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(e) Trade and Other Payables Trade payables including accruals not yet billed are recognised when the consolidated entity becomes obliged to make

future payments as a result of the purchase of assets or services. These amounts are unsecured and have generally 30-day payment terms.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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(f) Share-based Payments The Group operates equity-settled share-based payment employee share and option schemes. The fair value of the equity

to which employees become entitled is measured at grant date and recognised as an expense over the vesting period, with a corresponding increase to an equity account. The fair value of shares is ascertained as the market bid price. The fair value of options is ascertained using a Black-Scholes pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at each reporting date such that the amount recognised for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.

Share-based payments transactions, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the Company are recognised in the entity’s financial statements.

For transactions with employee and others providing similar services, the Company measures the fair value of the equity instruments granted, because it is typically not possible to estimate reliably the fair value of employee services received. The fair value of equity instruments granted is measured at grant date.

(g) Parent Entity Financial Information The financial information for the parent entity, Tranzact Financial Services Limited, included in Note 33, has been prepared on

the same basis as the consolidated financial statement, except as follows: – the parent entity’s interest in the subsidiary companies is recognised at the lower of cost and net recoverable value,

being the amount of the subsidiaries’ net assets at 30 June 2011

(h) Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal

ownership that is transferred to entities in the economic entity, are classified as finance leases.

Leases where the lessor retains substantially all the risks and rewards of ownership of the net asset are classified as operating leases. Payments under operating leases, net of incentives received from the lessor, are charged to the profit or loss on a straight-line basis over the period of the lease.

(i) Revenue Recognition Fee and commission income is recognised when the economic entity has performed the related service. Dividend income is

recognised when the dividend has been declared for payment. Interest revenue and distributions from financial interests are recognised on an accrual basis.

(j) Cash and Cash Equivalents For the purpose of the Statements of Cash Flows, cash includes cash on hand, deposits held at call with a financial

institution with original maturities of three months or less, net of bank overdrafts.

(k) Intangibles In accordance with AASB 138: Intangible Assets, intangible assets are classified as having either indefinite or finite

useful lives.

An intangible asset shall be regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the asset is expected to be used. If the contractual or other legal rights are conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is written evidence to support renewal.

An intangible asset with an indefinite useful life shall not be amortised. Instead it must be tested for impairment by comparing its recoverable amount with its carrying amount annually and whenever there is an indication that the intangible asset may be impaired.

An intangible asset with a finite useful life shall be amortised over its useful life. The amortisation method used shall reflect the pattern in which the assets future economic benefits are expected to be consumed.

Promoter Agreements

The Group has acquired the rights to be the promoter to superannuation master trusts which are classified as intangible assets. Some promoter agreement assets are deemed to have indefinite useful lives as it is expected that the promotership rights would continue with no foreseeable limit to the period over which they are expected to generate cash flows. As such, they are not amortised but are subject to impairment testing. The reminder are deemed to have definite useful lives and are amortised over three years.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Superannuation Administration Agreements

The Group has acquired agreements to provide administration services to superannuation entities which are classified as intangible assets. Where there is written evidence that these contracts will be renewed on an ongoing basis, the asset is classified as having an indefinite useful life. Such assets are not amortised but subject to impairment testing. Where no such evidence exists, they are classified as having a finite useful life and are amortised over the expected useful life, which may be based on the remaining term of the contract, or as calculated based on past experience where contracts do not have an end date.

The policy relating to the intangible asset for the administration agreements relating to the Smartsave ‘Member’s Choice’ Superannuation Master Plan, classified as having indefinite useful lives, are reassessed as having finite useful lives as at 30 June 2011 following the recent updating and re-signing of the administration agreement with different terms and conditions. The useful lives of these contracts is estimated to be 12 years. These intangible assets will be subject to an impairment test on an annual basis (or whenever there is an indication of an impairment issue). This is a change in accounting estimate from the previous year. For details see the “Critical Accounting Estimates and Judgements” section at the end of Note 1.

Client Contracts and Relationships

The Group has acquired client contracts, and value from an on-going relationship with those clients, on the acquisition of a client base from the Templetons Group which are classified as intangible assets. These intangible assets are classified as having a finite useful life and are amortised over their expected useful life, which is based on the recurring income stream estimated to be realised from existing clients from contracts and relationships in place at the time of acquisition.

Australian Financial Services Licences (AFS Licences)

The Group holds several AFS Licences which enables it to provide financial services including providing advice, dealing, IDPS and custody in return for fees. The costs incurred for obtaining these AFS Licences are capitalised and amortised over a period of no more than 10 years on a straight-line basis.

Software and Website Development

Software development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the software which is no more than 3 years on a straight-line basis.

Goodwill

Goodwill is initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains or losses on disposal of an entity include the carrying amount of goodwill relating to the entity sold.

(l) Earnings Per Share (i) Basic Earnings Per Share: Basic earnings per share is determined by dividing the operating profit/(loss) after income

tax and preference share dividends attributable to members of the Company by the weighted average number of ordinary shares outstanding during the year and are adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted Earnings Per Share: Diluted earnings per share adjusts the figures used in determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(m) Financial Instruments (i) Recognition Financial instruments, incorporating financial assets and financial liabilities, are recognised when the entity becomes

a party to the contractual provisions of the instrument. Trade date accounting is adopted for financial assets that are delivered within timeframes established by marketplace convention.

Financial instruments are initially measured at fair value plus transactions costs where the instrument is not classified as at fair value through profit or loss. Transaction costs related to instruments classified as at fair value through profit or loss are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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(ii) Financial assets at fair value through profit and loss A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so

designated by management and within the requirements of AASB 139: Recognition and Measurement of Financial Instruments. Derivatives are also categorised as held for trading unless they are designated hedges. Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the profit or loss in the period in which they arise.

(iii) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an

active market and are stated at the amortised cost using the effective interest rate method.

(iv) Held-to-maturity investments These investments have fixed maturities, and it is the Group’s intention to hold these investments to maturity. Any held-

to-maturity investments held by the Group are stated at the amortised cost using the effective interest rate method.

(v) Available-for-sale financial assets Available-for-sale financial assets include any financial assets not included in the above categories. Available-for-

sale financial assets are reflected at fair value, other than the Partnership for Growth investments (refer to Critical Accounting Estimates and Judgements). Unrealised gains and losses from changes in fair value are taken directly to other comprehensive income.

(vi) Equity instruments with no active market The valuation of financial interests in the Partnership for Growth asset utilises an equity style valuation methodology.

These instruments do not have a quoted market price in an active market that is reliably measurable of their market value due to the unique nature of the arrangements and structure of the business. The range of values applicable to these instruments is significant and the probabilities of the various estimates cannot be reasonably assessed. The values depend heavily on the nature of the revenue streams, the sustainability of the revenue streams over time, and the level of continuing involvement of the practice principals in the business. The Board has accordingly retained these assets at cost.

(vii) Financial liabilities Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and

amortisation.

(viii) Derivative instruments Derivative instruments are measured at fair value. Gains and losses arising from changes in the fair value are taken to

profit or loss unless they are designated as hedges. Gains and losses arising from designated hedges are taken directly to a hedge reserve in other comprehensive income and are transferred to profit or loss in the periods when the hedged item will affect the profit and loss.

(ix) Fair value Fair value is determined based on the current bid prices for all quoted investments. Valuation techniques are applied

to determine the fair value of unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.

(x) Impairment At each reporting date, the Group assesses whether there is objective evidence that a financial instrument has been

impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. These assessments are based on critical accounting estimates and judgements. Impairment losses are recognised in the profit or loss.

(n) Borrowing Costs Borrowing costs are recognised as expenses in the period in which they are incurred. Borrowing costs include interest on

short-term and long-term borrowings.

(o) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST is not

recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the Statement of Financial Position are shown inclusive of GST.

Cash flows are presented in the statement of cash flows on a gross basis, except for the GST component of investing and financing activities, which are disclosed as cash flows from operating activities.

(p) Business Combinations Business combinations occur where control over another business is obtained and results in the consolidation of its assets

and liabilities. All business combinations, including those involving entities under common control, are accounted for by applying the acquisition method.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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The acquisition method requires an acquirer of the business to be identified and for the cost of the acquisition and fair values of identifiable assets, liabilities and contingent liabilities to be determined as at acquisition date, being the date that control is obtained. Cost is determined as the aggregate of fair values of assets given, equity issued and liabilities assumed in exchange for control. Acquisition costs are expensed as incurred. Any deferred consideration payable is discounted to present value using the entity’s incremental borrowing rate.

For each business combination, the group measures non-controlling interests at either fair value or at the non-controlling interest’s share of the acquiree’s identifiable net assets.

Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of cost over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If the fair value of the acquirer’s interest is greater than cost, the surplus is immediately recognised in profit or loss.

(q) Foreign Currency Transactions and Balances Functional and presentation currency The functional currency of each of the Group’s entities is measured using the currency of the primary economic environment

in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

Transaction and balances Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the

transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of monetary items are recognised in profit or loss, except where deferred in other comprehensive income as a separate component of equity (foreign currency translation reserve).

Exchange differences arising on the translation of non-monetary items are recognised directly in other comprehensive income to the extent that the gain or loss is directly recognised in other comprehensive income, otherwise the exchange difference is recognised in profit or loss.

(r) Provisions Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is

probable that an outflow of economic benefits will result and that outflow can be reliably measured.

(s) Segment Reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision

maker. See Note 6.

(t) Trade Receivables Trade receivables are recognised at original invoice amounts less an allowance for uncollectible amounts and have

repayment terms between 30 and 90 days. Collectability of trade receivables is assessed on an ongoing basis. Debts which are known to be uncollectible are written off. An allowance is made for doubtful debts where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms. Objective evidence of impairment include financial difficulties of the debtor, default payments or debts more than 120 days overdue. On confirmation that the trade receivable will not be collectible the gross carrying value of the asset is written off against the associated provision.

(u) Interest-Bearing Liabilities All loans and borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently

measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the profit or loss over the period of the loans and borrowings using the effective interest method.

(v) Dividends Provision is made for dividends declared, and no longer at the discretion of the Group, on or before the end of the reporting

period but not at the end of the reporting period.

(w) Impairment At the end of each reporting period the Group assesses whether there is any indication that individual assets are impaired.

Where impairment indicators exist, recoverable amount is determined and impairment losses are recognised in the Statement of Comprehensive Income where the asset’s carrying value exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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(x) New or Amended Australian Accounting Standard In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the Australian

Accounting Standards Board (the AASB) that are relevant to its operations and effective for the current annual reporting period. The adoption of these new and revised Standards and Interpretations has not resulted in any changes to the Group’s accounting policies nor affected the amounts reported for the current or prior years.

(y) Accounting Standards issued but not yet effective At the date of authorisation of the financial report a certain number of the Australian Accounting Standards and

Interpretations issued or amended but not yet effective have not been adopted by the Group for the financial reporting year ended 30 June 2011. The Directors have assessed the impact of these new or amended standards (to the extent relevant to the Group) and interpretations as follows:

Reference Title Summary

Application date of Standard*

Impact on Company Financial Report

Application date for Company

AASB 9 (issuedDecember 2009 and amendedDecember2010)

Financial Instruments

Amends the requirements for classification and measurement of financial assets.

The following requirements have generally been carried forward unchanged from AASB 139 FinancialInstruments: Recognition and Measurement into AASB 9. These include the requirements relating to:– Classification and

measurement of financial liabilities; and

– Derecognition requirements for financial assets and liabilities.

However, AASB 9 requires that gains or losses on financial liabilities measured at fair value are recognised in profit or loss, except that the effects of changes in the liability’s credit risk are recognised in other comprehensive income.

1 January 2013

The Group has yet to assess the impact that the standard is likely to have on the Financial Statements of the Group.

1 July 2013

AASB 10 ConsolidatedFinancialStatements

Introduces a single ‘control model’ for all entities, including special purpose entities (SPEs), whereby all of thefollowing conditions must be present:– Power over investee

(whether or not power used in practice)

– Exposure, or rights, to variable returns from investee

– Ability to use power over investee to affect the entity’s returns from investee.

1 January2013

The Group has yet toassess the impact that the standard is likely to have on the FinancialStatements of the Group.

1 July 2013

* Designates the beginning of the applicable annual reporting period unless otherwise stated.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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(z) Rounding The Company is of a kind referred to in Class Order 98/0100 issued by the Australian Securities and Investments Commission

relating to rounding of amounts in the financial statements. Amounts have been rounded to the nearest thousand dollars ($’000) unless otherwise stated.

Critical Accounting Estimates and Judgements

The Directors evaluate estimates and judgements incorporated into the financial statements based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group.

Key Estimates – Impairment of Goodwill and Intangible Assets with Indefinite Useful Lives The Group tests annually whether goodwill and intangible assets with indefinite useful lives have suffered any impairment,

in accordance with the accounting policy stated in Note 1(w). The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of assumptions. Refer to Note 13 for details of these assumptions.

Key Judgements – Intangible Assets with Indefinite Useful Lives An intangible asset is regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the

asset is expected to generate cash inflows. Some promoter agreement assets are deemed to have indefinite useful lives as it is expected that the promotership rights would continue with no foreseeable limit to the period over which they are expected to generate cash flows, and therefore no justification for choosing a life that is unrealistically short. As such, they are not amortised but are subject to impairment testing on an ongoing basis.

Key Judgements – Financial Interests in the Camelot Partnership for Growth Investments The valuation of financial interests in the Partnership for Growth asset utilises an equity style valuation methodology. These

instruments do not have a quoted market price in an active market that is reliably measurable of their market value. The range of values applicable to these instruments is significant and the probabilities of the various estimates cannot be reasonably assessed. The values depend heavily on the nature of the revenue streams, the sustainability of the revenue streams over time, and the level of continuing involvement of the practice principals in the business. The Board has accordingly retained these assets at cost.

The group tests annually whether these investments have suffered any impairment, in accordance with the accounting policy stated in Note 1 (w).

As part of the Partnership for Growth strategy, Tranzact maintains an indirect interest in a New Zealand partnership, Camelot NZ Limited Partnership, of greater than 20%. The interest is held via loans to other independently owned entities. Tranzact holds no control or influence over the business’s operations or decisions concerning the management of Camelot NZ Limited Partnership, there is no representation on the board or any material transactions arising between Camelot NZ Limited Partnership and the Group. The management of this business rests with the three directors, who are independent of the Group. Accordingly, the indirect equity interest has been treated as an available for sale investment and not as an associate entity.

Key Judgements – Superannuation Administration Agreements Administration agreements (indefinite useful lives) relating to the Smartsave ‘Member’s Choice’ Superannuation Master Plan

totalling $1,069,173 were reassessed as having finite useful lives as at 30 June 2011 subject to amortisation over a 12 year period. This change in assessment follows the updating and re-signing of the administration agreement with different terms and conditions, during the year ended 30 June 2011.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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38 Tranzact Financial Services Limited | Annual Report 2011

Key Judgements – Change of Accounting Estimates – Superannuation Administration Agreements As detailed in Key Judgement – Superannuation Administration Agreements above, the reassessment of certain administration

agreements as having finite useful lives subject to amortisation over a 12 year period has resulted in an increase in amortisation expense on this intangible asset for the current financial year from $0 to $89,098.

Assuming the assets are held until the end of their estimated useful lines, amortisation in relation to these assets will be increased by the following amounts:

Year ending 30 June $2012 89,0982013 89,0982014 89,0982015 89,0982016 89,0982017 89,0982018 89,0982019 89,0982020 89,0982021 89,0982022 89,095

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 39

2. Revenue

Consolidated2011$’000

Consolidated2010$’000

RevenueRendering of services 6,998 6,738Commission income 1,102 414Bank interest 66 50Distributions from financial interests in the Camelot Partnership 658 622Dividends received 4 7

8,828 7,831

Other IncomeRealised foreign exchange gains 229 109Unrealised foreign exchange losses (193) (68)

36 41

3. Profit before Income Tax

Profit before Income Tax includes the following specific expenses.

Consolidated2011$’000

Consolidated2010$’000

Occupancy CostsNet rental expenses relating to operating leases 294 292

Other occupancy costs 68 61

362 353

Employee Benefits ExpensesSalary & wages 2,460 2,335

Superannuation contributions 208 205

Other employee benefits expense 419 355

3,087 2,895

Amortisation and Depreciation ExpensesDepreciation – property, plant and equipment 125 133

Amortisation of intangible assets – administration agreements 284 139

Amortisation of intangible assets – licences, trade marks and other items 39 24

Amortisation of intangible assets – software & website development 78 111

Amortisation of intangible assets – promotor agreements 47 23

Amortisation of intangible assets – Templetons 179 –

752 430

Financing CostsInterest on borrowings 108 37

Other borrowing costs 35 20

143 57

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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40 Tranzact Financial Services Limited | Annual Report 2011

4. Income Tax

(a) The components of tax expense comprise:

Consolidated2011$’000

Consolidated2010$’000

Current tax 844 561Deferred tax (208) (167)Adjustments for previous years – (19)Recoupment of prior year tax losses (382) (349)Total income tax expense in profit or loss 254 26

(b) The prima facie tax payable on the operating profit is reconciled to the income tax provided as follows:

Profit/(Loss) before Income Tax 1,966 1,535Prima facie tax payable at 30% 590 461

Tax effect of differences:Non allowable deductions 129 5Tax effect of share of net profit of associates (38) (36)Tax effect of fully franked dividends (45) (36)Recoupment of prior year tax losses previously not recognised (382) (349)Income Tax adjusted for permanent differences 254 45Prior year adjustment – (19)Income tax expense 254 26

Tranzact Financial Services Limited and its wholly owned subsidiaries implemented the tax consolidation legislation as at 1 July 2002. The head entity of the tax consolidated group is Tranzact Financial Services Limited.

The wholly owned subsidiaries within the Tranzact Financial Services Group have entered into a tax funding arrangement with the head entity whereby the subsidiaries shall pay to the head entity their respective tax liabilities each year. In the case of subsidiaries having recorded a tax loss it will not need to make a payment to the head entity and it will instead receive a payment from the head entity to the extent that the tax loss can be utilised by the consolidated group. The head entity is entitled to utilise any carry forward losses of the consolidated group. Any associated costs such as general interest charge and penalties shall be paid for by the head entity.

The tax benefit of unused tax losses as at 30 June 2011 amounted to $40,314 (2010: $422,801). The availability of these tax losses is subject to the Company continuing to satisfy the Same Business Test. Deferred Tax Assets are brought to account only if the conditions set out in Note 1(c) are met.

No benefit from the above carried forward tax losses is included in the Deferred Tax Asset balance. This is due to the possibility of transactions being considered that could result in the inability of tax losses being utilised.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 41

5. Earnings Per Share

Consolidated2011$’000

Consolidated2010$’000

Earnings used in the calculation of basic earnings per share 1,606 1,509

No. No.Weighted average number of ordinary shares on issue used in the calculation of basic earnings per share 111,266,597 112,779,360Weighted average number of options outstanding – 54,392Weighted number of ordinary shares outstanding during the year used in calculating diluted earnings per share 111,266,597 112,833,752

Instruments that could potentially dilute earnings per share but were not included because they were anti-dilutive 27,953,049 27,953,049

Refer to Note 1(l)(ii) for information relating to diluted earnings per share.

No shares or options have been issued since 30 June 2011. 517,400 shares have been repurchased and cancelled since 30 June 2011.

6. Segment Information

Within Tranzact Financial Services Limited, the information supplied to executive management and the Board for internal reporting purposes consists of 5 reportable segments as detailed below. Revenue and expenses not pertaining to segments relate to head office and are shown separately below.

The Group’s business is located in Australia and New Zealand and is organised into the following segments:

Superannuation Fund Administration, Asset Consulting & Sponsorship The Group operates as a superannuation fund administrator, asset consultant and sponsor for a number of master trust and

pooled superannuation trusts. For these services the Group receives fees and commission income.

Self Managed Superannuation Fund Administration The Group operates as a superannuation fund administrator for a number of self managed superannuation funds. For these

services the Group receives administration fee income.

Investor Directed Portfolio Service Administration (IDPS) Tranzact Investment Services Limited, a subsidiary of the Company, holds an Australian Financial Services Licence to operate an

investor directed portfolio service (IDPS) and currently provides such a service to external clients for a fee.

Custodial Services Tranzact Investment Services Limited, a subsidiary of the Company, holds an Australian Financial Services Licence to provide

custodial services and currently provides such a service to external clients for a fee.

Partnership for Growth The Partnership for Growth interests in New Zealand are loans granted for interests in financial and insurance advisory

businesses. The Group receives interest on these loans. The Partnership for Growth Australian based interests are shareholdings in businesses providing insurance and financial planning services from which dividends are received and a share of profit recognised.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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6. Segment Information (continued)

Segment Information These reportable segments are the same as those reported in the previous financial statements for the year ended 30 June 2010.

Segement information provided to the executive management committee and the Board for the year ended 30 June 2011 is as follows:

Operating SegmentsSuper Fund* $’000

SMSF** $’000**

IDPS Admin $’000

Custodial Services

$’000

Partnership for Growth

$’000

Head Office $’000

Total $’000

2011 Financial Year Segment Revenue

External revenues 3,823 3,346 147 55 1,376 81 8,828Before tax share of profit of associated entities – – – – – 183 183Less non-controlling interests share of revenue – – – – (235) – (235)External revenues attributable to owners of the Company 3,823 3,346 147 55 1,141 264 8,776

Finance Costs (143) – – – – – (143)

Segment Result before depreciation, amortisation, tax and including before tax share of profit from equity accounted investees 801 583 124 28 1,194 (64) 2,666

Depreciation and amortisation expense (246) (313) (10) (4) (179) – (752)

Group taxation expense (254)Taxation on share of profit of equity accounted investees (54)

Total comprehensive income attributable to owners of the Company 1,606

Super Fund* $’000

SMSF** $’000**

IDPS Admin $’000

Custodial Services

$’000

Partnership for Growth

$’000

Head Office $’000

Total $’000

2010 Financial Year Segment RevenueExternal revenues 3,184 3,664 159 65 725 34 7,831Before tax share of profit of associated entities – – – – – 172 172External revenues attributable to owners of the Company 3,184 3,664 159 65 725 206 8,003

Finance Costs (55) (2) – – – – (57)

Segment Result before depreciation, amortisation, tax and including before tax share of profit from equity accounted investees 428 745 133 36 744 (70) 2,016

Depreciation and amortisation expense (137) (281) (10) (2) – – (430)

Group taxation expense (26)Taxation on share of profit of equity accounted investees (51)

Total comprehensive income attributable to owners of the Company 1,509

* Superannuation fund administration, asset consulting and sponsorship

** Self managed superannuation fund administration

Total asset amounts provided to the executive management committee and the Board in internal reports are not broken down by segment and are therefore not disclosed.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 43

6. Segment Information (continued)

The executive management committee monitors segment performance based on EBTDA, which includes share of profit of equity accounted investees, but excludes taxation, depreciation, amortisation and EBTDA attributable to non-controlling interest.

Geographical Segments

Segment Revenues from External Customers

2011$’000

2010$’000

Geographical Location:Australia 8,061 7,113New Zealand 767 718

8,828 7,831

7. Current Assets – Cash & Cash Equivalents

Consolidated2011$’000

Consolidated2010$’000

Cash at Bank 722 2,014Cash on Deposit 89 79

811 2,093

Note: Cash on Deposit includes term deposits with original maturities of three months or less, that are lodged as security for the Australian Financial Services Licence requirements and lease guarantees.

The exposure of the Group and the parent entity to interest rate risk is discussed in Note 30.

8. Current Assets – Trade and Other Receivables

Consolidated2011$’000

Consolidated2010$’000

Trade receivables 581 608Less: allowance for doubtful debts (13) –

568 608Other receivables 324 13Accrued revenue 244 180

1,136 801

Age analysis of trade receivables at the reporting date:

Consolidated2011$’000

Consolidated2010$’000

Total amounts not past due 492 556Total amounts over 30 days past due 27 13Total amounts over 60 days past due 7 6Total amounts over 90 days past due 55 33

581 608Total amounts impaired (13) –Total amounts not impaired 568 608

Analysis of Allowance Account

Consolidated2011$’000

Consolidated2010$’000

Opening Balance – 2Receivables written off during the year – (2)Provided for during the year 13 –

Closing balance 13 –

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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8. Current Assets – Trade and Other Receivables (continued)

All the current net trade receivables that are neither past due nor impaired are with long standing clients who have a good credit history.

As at 30 June 2011, trade receivables over 30 days past due amounted to $89,000. The majority of this was owed by long standing clients who have agreements with the Group, the conditions of which make it very unlikely that debts will not be repaid.

Based on the above, the directors consider that, of the balances over 30 days past due, none are impaired and no further provision is required.

Information about the exposure of the Group and the parent entity to foreign currency risk and interest rate risk in relation to trade and other receivables is provided in Note 30.

Due to the short term nature of these receivables, their carrying amount is assumed to approximate their fair value.

The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above. Refer to Note 30 for more information on the risk management policy of the Group and the credit quality of its trade receivables.

9. Current Assets – Prepayments

Consolidated2011$’000

Consolidated2010$’000

Prepayments 109 46

10. Non-Current Assets – Property, Plant & Equipment

Consolidated2011$’000

Consolidated2010$’000

Plant & equipment at cost 1,137 825Less accumulated depreciation (655) (549)

482 276

Motor vehicle at cost 68 68Less accumulated depreciation (28) (19)

40 49

Capitalised leased assets 47 47

Less accumulated depreciation (38) (29)9 18

Total 531 343

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 45

10. Non-Current Assets – Property, Plant & Equipment (continued)

Reconciliation

Reconciliation of the carrying amount of each class of property, plant & equipment at the beginning of the year and at the end of the financial year is set out below:

2011

Plant & Equipment

$’000

Motor Vehicle

$’000

Leased Plant & Equipment

$’000Total

$’000

Consolidated EntityCarrying amount as at 30 June 2010 276 49 18 343Additions 313 – – 313

Disposals – – – –

Depreciation charge (107) (9) (9) (125)Carrying amount as at 30 June 2011 482 40 9 531

2010

Plant & Equipment

$’000

Motor Vehicle

$’000

Leased Plant & Equipment

$’000Total

$’000

Consolidated EntityCarrying amount as at 30 June 2009 360 57 28 445Additions 31 – – 31Disposals – – – –Depreciation charge (115) (8) (10) (133)Carrying amount as at 30 June 2010 276 49 18 343

11. Non-Current – Other Financial Assets

Consolidated2011$’000

Consolidated2010$’000

Available for Sale Assets at cost 5,551 5,214

Total 5,551 5,214

Available for sale assets comprise of:

Shares in unlisted entities at cost:

Consolidated2011$’000

Consolidated2010$’000

Gold Financial Pty Ltd 56 56Other investments at cost:

Financial interests in Partnership for Growth (1) 5,495 5,158

Total 5,551 5,214

(1) The Partnership for Growth model involves the Group making loans for strategic financial interests in adviser practices with the objective of partnering with these practices to achieve growth and improvements in profitability. In New Zealand, the Partnership For Growth model has developed into the creation of a nationwide brand, Camelot, under which the various partners will operate. The Group accesses these financial interests through Camelot Financial Advisers Limited. This entity was set up to obtain the funding needed for the growth initiatives of the adviser practices in the Camelot Partnership.

There are no indications of impairment and these investments are held at cost in terms of the Statement of Significant Accounting Policies (Note 1). No intention to dispose of any unlisted available-for-sale financial assets existed at 30 June 2011.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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46 Tranzact Financial Services Limited | Annual Report 2011

12. Non-Current – Investments Accounted for using the Equity Method

Consolidated2011$’000

Consolidated2010$’000

Shares in associated entities 1,618 1,249

Total 1,618 1,249

Investments in Associates

(a) Movements in carrying amounts

Consolidated 2011 $’000

Consolidated 2010 $’000

Carrying amount at the beginning of the financial year 1,249 1,241Share of profits after income tax 128 120Dividends received (150) (112)Acquisition in the year (1) 391 –

Carrying amount at the end of the financial year 1,618 1,249

(1) A 33.3% interest in Templetons Administrative Services Pty Ltd was acquired on 1 October 2010 for $333,000 plus an additional amount of $58,421 was invested on 22 June 2011 following a capital call. The holding at 30 June 2011 was 33.3%.

Summarised financial statements of associatesThe Group’s share of the results of its principal associates and its aggregated assets (including goodwill) and liabilitiesare as follows:

Ownership Group’s share of:

Interest

% Assets

$’000Liabilities

$’000Revenues

$’000Profit $’000

2011Group Insurance and Superannuation Concepts Pty Ltd 25 323 80 508 168Templetons Administrative Services Pty Ltd (1) 33 208 126 458 (40)

531 206 966 128

2010Group Insurance and Superannuation Concepts Pty Ltd 25 266 37 391 120

266 37 391 120All of the above associates are incorporated in Australia.

(1) Revenue and profit shown based on 9 months since acquisition .

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 47

13. Non-Current Assets – Intangible Assets

Consolidated2011$’000

Consolidated2010$’000

Promoter agreements at cost(Indefinite useful lives) 2,095 2,095Less accumulated impairment losses – –

2,095 2,095Promoter agreements at cost(Finite useful lives) 140 140Less accumulated impairment losses (70) (23)

70 117Administration agreements at cost(Finite useful lives) 2,429 1,359Less accumulated amortisation (614) (329)

1,815 1,030Administration agreements at cost(Indefinite useful lives) – 1,069Less accumulated impairment losses – –

– 1,069

Goodwill on acquisition 4,470 2,654Less accumulated impairment losses – –

4,470 2,654

Licences, trade marks and other items at cost 271 271Less accumulated amortisation (145) (106)

126 165

Software & website development at cost 328 328Less accumulated amortisation (328) (250)

– 78

Client contracts and relationships 1,596 –Less accumulated amortisation (179) –

1,417 –

Total Intangible Assets 9,993 7,208

An intangible asset shall be regarded as having an indefinite useful life when there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. The useful life of an intangible asset that arises from contractual or other legal rights shall not exceed the period of the contractual or other legal rights, but may be shorter depending on the period over which the asset is expected to be used. If the contractual or other legal rights are conveyed for a limited term that can be renewed, the useful life of the intangible asset shall include the renewal period(s) only if there is written evidence to support renewal.

An intangible asset with an indefinite useful life shall not be amortised. Instead it must be tested for impairment by comparing its recoverable amount with its carrying amount annually and whenever there is an indication that the intangible asset may be impaired.

Some of the Promoter Rights of the superannuation master trusts are deemed to have indefinite useful lives. This is because management are of the opinion that there is no foreseeable limit over which these assets are expected to generate net cash inflows for the Group and therefore no justification for choosing a life that is unrealistically short. Impairment reviews are performed on an ongoing basis.

There is a change in accounting estimate in the current period relating to administration agreements (indefinite useful lives) relating to the Smartsave ‘Member’s Choice’ Superannuation Master Plan totalling $1,069,173 which are reassessed as having finite useful lives as at 30 June 2011, subject to amortisation over a 12 year period. This change in assessment follows the updating and re-signing of the administration agreement with different terms and conditions.

A cash-generating unit is the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Identification of an asset’s cash-generating unit involves judgement. If the recoverable amount cannot be determined for an individual asset, an entity identifies the lowest aggregation of assets that generate largely independent cash inflows.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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48 Tranzact Financial Services Limited | Annual Report 2011

13. Non-Current Assets – Intangible Assets (continued)

ReconciliationReconciliation of the carrying amount of each class of intangible asset at the beginning of the year and at the end of the financial year is set out below:

2011Consolidated Entity

Promoter Agreements

$’000

Administration Agreements

$’000Goodwill

$’000

Licences, Trade Marks

and Other Items$’000

Software & Website

Development$’000

Templetons Intangible

AssetsTotal

$’000

Carrying amount as at 30 June 2010 2,212 2,099 2,654 165 78 – 7,208Additions (Note 29) – – 1,816 – – 1,596 3,412Disposals – – – – – – –Amortisation charge (47) (284) – (39) (78) (179) (627)Carrying Amount as at 30 June 2011 2,165 1,815 4,470 126 – 1,417 9,993

Material Intangible AssetsSmartsave ‘Member’s Choice’ Superannuation Plan Promotership Rights Carrying Amount: $2,094,973 Type: Indefinite Useful Life

Smartsave ‘Member’s Choice’ Superannuation Plan Administration Agreement Carrying Amount: $980,075 Type: Finite Useful Life with a remaining useful life of 11 years at 30 June 2011

Client Contracts & Relationships – Camelot Financial Services Pty Ltd Carrying Amount: $1,417,038 Type: Finite Useful Life with a remaining useful life of 5 years at 30 June 2011

Goodwill recognised on consolidation in relation to Total Super Pty Ltd, Australian Superannuation Consultants Pty Ltd and Camelot Financial Services Pty Ltd Carrying Amount: $4,469,647 Type: Indefinite Useful Life

Administration Contracts – Total Super Pty Ltd and Australian Superannuation Consultants Pty Ltd. Carrying Amount: $775,038 Type: Finite Useful Life with a remaining useful life of 5 years at 30 June 2011

2010Consolidated Entity

Promoter Agreements

$’000

Administration Agreements

$’000Goodwill

$’000

Licences, Trade Marks

and Other Items$’000

Software & Website

Development$’000

Total$’000

Carrying amount as at 30 June 2009 2,181 2,194 2,654 182 185 7,396Additions 54 44 – 11 – 109Disposals – – – (1) – (1)Amortisation charge (23) (139) – (24) (107) (296)Carrying Amount as at 30 June 2010 2,212 2,099 2,654 165 78 7,208

Material Intangible AssetsSmartsave ‘Member’s Choice’ Superannuation Master Plan Promotership RightsCarrying Amount: $2,094,973Type: Indefinite Useful Life

Smartsave ‘Member’s Choice’ Superannuation Master Plan Administration AgreementCarrying Amount: $1,069,173Type: Indefinite Useful Life

Goodwill recognised on consolidation in relation to Total Super Pty Ltd and Australian Superannuation Consultants Pty Ltd Carrying Amount: $2,654,523Type: Indefinite Useful Life

Administration Contracts – Total Super Pty Ltd and Australian Superannuation Consultants Pty Ltd Carrying Amount: $930,046 Type: Finite Useful Life with a remaining useful life of 6 years at 30 June 2010

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 49

13. Non-Current Assets – Intangible Assets (continued)

Impairment DisclosuresIntangible assets allocated to the cash-generating units of the Group are as follows:

2011Consolidated Entity

Goodwill$’000

Intangibleswith Indefinite

Useful Lives$’000

Intangibleswith Finite

Useful Lives$’000

Licences Trade Marks and Others

$’000Total

$’000

Smartsave ‘Member’s Choice’ Superannuation Master Plan – 2,095 990 – 3,085Super Eligible Rollover Fund – – 140 – 140Self Managed Superannuation Funds 2,654 – 775 45 3,474Client Contracts & Relationships (Templetons) 1,816 – 1,417 – 3,233Other – – – 61 61

4,470 2,095 3,322 106 9,993

2010Consolidated Entity

Goodwill$’000

Intangibleswith Indefinite

Useful Lives$’000

Intangibleswith Finite

Useful Lives$’000

Licences Trade Marks and Others

$’000Total

$’000

Smartsave ‘Member’s Choice’ Superannuation Master Plan – 3,164 – – 3,164Super Eligible Rollover Fund – – 217 – 217Self Managed Superannuation Funds 2,654 – 930 134 3,718Other – – – 109 109

2,654 3,164 1,147 243 7,208

The recoverable amount of the cash-generating units (CGU’s) is based on value-in-use calculations. Value-in-use is calculated based on present value of cash flow projections over a five year period for the Smartsave ‘Member’s Choice’ Superannuation Master Plan and the Super Eligible Rollover Fund CGU’s, and over a twenty year period for the Self Managed Superannuation Funds and Client Contacts & Relationships CGU’s.

The cash flow projections are based on the following year’s approved budget and extrapolated for a further four years using an estimated revenue growth rate of 2.5% for the Smartsave ‘Member’s Choice’ Superannuation Master Plan, with no growth rate factored in for the Super Eligible Rollover Fund, Self Managed Superannuation Funds and Client Contacts & Relationships CGU’s. Costs are projected to increase by a rate of 3% per annum.

The use of a time horizon beyond five years is considered appropriate by the Board because: – the Board takes a longer term view than five years on the investments made in strategic areas of the business such as Self

Managed Superannuation Fund Administration and Client Contracts and Relationships. – the Board does not agree that strategic investments of this kind can be expected to be self funding within five years, based on

the market value of these investment opportunities and where they would have a future re-sale value should they be sold by the Group.

– the Board is highly confident the Tranzact Group will obtain significant commercial benefit from these investments for the longer term, which is consistent with the current year results and expected future results for this segment of the business.

The cash flows are discounted at a pre-tax rate of 13% (2010: 13%).

A sensitivity analysis in relation to changes in key assumptions is detailed below and illustrates the changes in recoverable amounts if the assumptions are varied as shown.

In order to assess the required pre-tax discount rate which provides a break-even discounted cashflow against CGU assets, the internal rates of return were calculated as follows:

SmartsaveMaster Plan

Super Eligible Rollover Fund

Client Contracts& Relationships SMSF*

Internal rates of return 25% N/A(1) 17% 22%

(1) The discounted payback for this CGU is less than one year, as such the internal rate of return does not provide a meaningful result.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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50 Tranzact Financial Services Limited | Annual Report 2011

13. Non-Current Assets – Intangible Assets (continued)

Based on the assumptions set out above, the impact on discounted cashflows was reviewed against several sensitivity measures as follows:

Effect on cashflows

SmartsaveMaster Plan

$’000

Super Eligible Rollover Fund

$’000Client Contracts& Relationships

SMSF*$’000

Cashflow forecast period+ one year 530 175 53 81– one year (569) (195) (58) (89)

Discount rate + 1% (84) (31) (201) (313)

– 1% 88 32 229 356

Estimated Revenue Growth rate + 1% 166 39 92 140 – 1% (163) (38) (89) (136)

* Self managed superannuation fund administration

14. Non-Current Assets – Deferred Tax Assets

Consolidated2011$’000

Consolidated2010$’000

Deferred Tax Asset 243 159

Deferred tax asset comprises temporary differences attributable to:Employee Benefits 82 70Accruals 216 155Interest Receivable (55) (66)

243 159

Note: Deferred Tax Asset does not include any carried forward tax losses (refer Note 4).

ReconciliationsGross MovementsOpening Balance 159 86Credit to income statement 84 73Closing Balance 243 159

Movement in deferred tax assets for each temporary difference during the year is as follows:

Employee BenefitsOpening Balance 70 37Credit to income statement 12 33Closing Balance 82 70

AccrualsOpening Balance 155 118Credit to income statement 61 37Closing Balance 216 155

Interest ReceivableOpening Balance (66) (69)Credit to income statement 11 3Closing Balance (55) (66)

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 51

15. Interest Bearing Liabilities

Consolidated2011$’000

Consolidated2010$’000

Long TermCommercial Bill (1) 1,376 –

Total 1,376 –

(1) The above is a commercial bill variable interest rate facility of $3,000,000 provided by St George Bank, a division of Westpac Banking Corporation (2010: $3,000,000). This is a three year facility dated 16 August 2010.

The security for the loan consists of fixed and floating charges against the assets of Tranzact Financial Services Limited and its wholly owned subsidiaries.

The interest rates on the loan ranged from 5.79% to 5.89% during the year ended 2011 (2010: n/a). While each of the commercial bills has a term of between 30 and 90 days, they can be rolled over up to the date of expiry of the overall bank facility of 16 August 2013 and therefore the loan has been classified as a non-current asset.

16. Trade & Other Payables

Consolidated2011$’000

Consolidated2010$’000

Short TermTrade Creditors 133 241Other Payables and Accruals (1) 856 784

989 1,025

(1) Includes accruals for annual leave. The entire obligation is presented as current, since the Group does not have an unconditional right to defer settlement. However, based on past experience, the Group does not expect all employees to take the full amount of accrued leave within the next 12 months.

Consolidated2011$’000

Consolidated2010$’000

Long TermOther Creditors and Accruals (2) – 9

(2) Includes the finance lease payments which have no interest charged on them.

Refer to Note 30 for risk exposures.

17. Current Liabilities – Derivatives

Consolidated2011$’000

Consolidated2010$’000

Foreign exchange contracts – held for trading 117 105117 105

Derivative instruments used by the Group The Group enters into derivative transactions in the normal course of business to hedge exposure to fluctuations in foreign exchange rates.

As part of the Partnership for Growth strategy $7,118,295 in New Zealand dollar loans have been granted (2010: $6,334,433). In order to protect against exchange rate movements, the Group has entered into forward foreign exchange contracts with high credit quality Australasian financial institutions to sell $7,100,000 New Zealand dollars to hedge principal amounts (2010: $6,365,000). While not designated hedges, the contracts have been taken out within $100,000 of the principal amounts in accordance with the

Group’s financial risk management policies (refer Note 30).

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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52 Tranzact Financial Services Limited | Annual Report 2011

17. Current Liabilities – Derivatives continued)

The cash flows are expected to occur at various dates between three months, six months and one year from the balance date. At balance date the details of outstanding contracts are as follows:

Sell New Zealand dollars/

Buy Australian dollars Average exchange rate

2011$’000

2010$’000

2011$

2010$

Maturity

0 – 3 months – – – –3 – 6 months 2,801 2,460 0.7779 0.8038

6 – 12 months 2,637 2,655 0.7535 0.8035

These contracts are fair valued by comparing the contracted rate to the current market rate for a contract with the same remaining period to maturity. Any changes in fair values are taken to profit or loss immediately. At the end of the reporting period the value of these contracts totalled $117,424 (2010: $104,632), being the decrease in fair value during the year ended 30 June 2011.

18. ProvisionsConsolidated

2011$’000

Consolidated2010$’000

Long TermEmployee Entitlements – Long Service Leave 119 93Restoration Costs 40 –

159 93(a) Restoration costs Tranzact Financial Services Limited is required to restore its leased premises to their original condition at the end of their

respective lease terms. A provision has been recognised for the present value of the estimated expenditure required to remove any leasehold improvements. The costs have been capitalised as part of the cost of leasehold improvements and are amortised over the shorter of the term of the lease or the useful life of the assets.

(b) Movement in provisions Movements in each class of provision during the financial year, other than employee entitlements, are set out below:

Restoration Costs $’000

Total $’000

Carrying amount at the start of the year – 1 July 2010 – –Restoration Costs 40 40Carrying amount at the end of the year - 30 June 2011 40 40

19. Share-Based Payments

Tranzact Financial Services Limited Directors, Executives and Staff Share Option Plan The Tranzact Financial Services Limited Directors, Executives and Staff Share Option Plan was approved by shareholders on 6

March 2000. Those eligible to participate are determined by the Board which may in its absolute discretion determine who are the offerees, the number of ordinary shares and/or options to be offered to them and the offering dates.

The Company shall offer such number of ordinary shares and/or options to such offerees in accordance with their eligibility. Options are granted under the plan for no consideration. Options granted under the plan carry no dividend or voting rights. Options offered must be accepted within 30 business days after the date of the offer. The vesting period is 3 years from the date they are granted. The total number of ordinary shares and options issued under the plan and excluding lapsed or terminated options shall not at any time exceed that number which is 5% of the total number of issued shares.

Expenses arising from options granted under staff share option schemes for the year was $nil (2010: $nil).

See Note 21 for summary of movements.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 53

19. Share-Based Payments (continued)

Details of options outstanding as part of the Staff Share Option Plan during the financial year are as follows:

2011Grant date

Exercise date

Expiry date

Exercise price

Balance at beginning

of year

Granted during

the year

Forfeited during

the year

Exercised during the

year

Expired during

the year

Balance at end of

year

Exercisable at end of

year

1 July 2006 1 July 2009 1 July 2011 $0.04 75,000 – – (75,000) – – –Weighted average exercise price $0.04

2010Grant date

Exercise date

Expiry date

Exercise price

Balance at beginning

of year

Granted during

the year

Forfeited during

the year

Exercised during the

year

Expired during

the year

Balance at end of

year

Exercisable at end of

year

1 July 2006 1 July 2009 1 July 2011 $0.04 125,000 – – (50,000) – 75,000 75,000Weighted average exercise price $0.04 $0.04 $0.04

TFS Group Employee Bonus and Share SchemeThe Company established the TFS Group Employee Bonus and Share Scheme in April 2007 under which the Trustees of the Scheme may be issued or acquire shares in the Company, to hold for the purpose of providing rights to eligible employees provided that, for the purposes of the Scheme, in no event shall the Trustees hold in excess of 10% of the issued share capital of the Company.

Details of shares and options held as part of the Employee Bonus and Share Scheme are as follows:

Parent Entity

SharesNumber

OptionsNumber

Weightedaverage price

Balance at 30 June 2009 2,117,556 400,000Vested shares transferred to employees during the year (350,000) –

Options expired on 30 April 2010 (1) – (400,000)

Options allocated in the bonus issue of 14 May 2010 (2) – 412,709

Shares sold during the period (116,720) –

Balance at 30 June 2010 1,650,836 412,709

Vested shares transferred to employees during the year (420,000) –Shares purchased during the period 609,999 – $0.15

Shares sold during the period (92,501) –Balance at 30 June 2011 (3) 1,748,334 412,709

(1) The options attached to the 400,000 shares purchased in May 2007 expired on 1 April 2010 with no options having been exercised.

(2) The Scheme was allocated 412,709 options in the free bonus issue of 14 May 2010 which entitles the holder to acquire one share in Tranzact Financial Services Ltd and will be exercisable at $0.25 at any time prior to 31 October 2012.

(3) These shares are granted to certain key employees and, on the condition that those employees remain full-time employees up to that date, will vest as follows: 967,778 on 1 July 2011, 50,000 on 10 September 2011, 242,778 on 1 July 2012 and 487,778 on 1 July 2013.

The amount recognised in Employee Benefits as an expense in relation to the Employee Bonus and Share Scheme for the year ended 30 June 2011 was $88,734 (2010: $63,445).

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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54 Tranzact Financial Services Limited | Annual Report 2011

20. Deferred Tax Liabilities

Consolidated2011$’000

Consolidated2010$’000

Deferred tax liabilities comprise temporary differences attributable to:

Fair value adjustments on acquisition – intangible assets with definite useful lives 656 300

Total deferred tax liabilities 656 300To be settled within 12 months 126 79To be settled after more than 12 months 530 221

Movements in deferred tax liabilities

2011

Opening balance at

1 July 2010

Charged/ (credited) to

income

Amounts recognised

on acquisition of controlled

entity

Closing balance at

30 June 2011

Consolidated EntityFair value adjustments on acquisition – intangible assets with definite useful lives 300 (123) 479 656

Total 300 (123) 479 656

2010

Opening balance at

1 July 2009

Charged/ (credited) to

income

Amounts recognised

on acquisition of controlled

entity

Closing balance at

30 June 2010

Consolidated EntityAccrued Income 26 (26) – –Fair value adjustments on acquisition – intangible assets withdefinite useful lives 368 (68) – 300

Total 394 (94) – 300

21. Issued Capital

2011Shares

2011$’000

2010Shares

2010$’000

ConsolidatedShare capitalOrdinary shares – no par value 111,250,355 19,775 111,730,755 19,853Fully paid 111,250,355 19,775 111,730,755 19,853

Ordinary shares entitle the holder to participate in dividends and the proceeds of winding up the Company in proportion to the number of shares held. On a show of hands every person present who is a member or a representative or an attorney or a proxy of a member has one vote. The Company can issue further shares in accordance with its constitution and the Corporations Act.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 55

21. Issued Capital (continued)

Movements in ordinary share capital

Date Details Number of shares $’000

30 June 2009 Balance 113,042,901 20,04730 July 2009 Exercise of Staff Options (1) 50,000 6October 2009 to June 2010 Shares repurchased (2) (1,362,146) (200)

111,730,755 19,853

4 April 2011 Exercise of Staff Options (3) 75,000 8July 2010 to February 2011 Shares repurchased (4) (555,400) (86)

111,250,355 19,775

(1) 50,000 equity securities were issued on 30 July 2009 at $0.04 per security following the exercise of unlisted options under the Staff Share Option Plan. The exercise price was $0.04 per share, and a transfer of $3,500 was made from the employee option reserve.

(2) 1,362,146 equity securities were purchased on market between October 2009 and June 2010 at prices between $0.13 and $0.15 per security under the share buy back scheme announced on 29 September 2008 and subsequent extension notice on 28 September 2009. These securities have subsequently been cancelled.

(3) 75,000 equity securities were issued on 4 April 2011 at $0.04 per security following the exercise of unlisted options under the Staff Share Option Plan. The exercise price was $0.04 per share, and a transfer of $4,613 was made from the employee option reserve.

(4) Between July and September 2010, 499,900 equity securities were purchased on market at $0.15 per security, and in January and February 2011, a further 55,500 securities at $0.20 per security, under the share buy back scheme announced on 29 September 2008 and subsequent extension notice of 6 October 2010. These securities have subsequently been cancelled.

Options

Parent2011

No.

Parent2011

$

Parent2010

No.

Parent2010

$

(i) Listed Options

Listed OptionsAt the beginning of the reporting period 27,953,049 – 36,069,395 10,001Unexercised options expired (1) – – (36,069,395) (10,001) Bonus Issue (2) – – 27,953,049 –

27,953,049 – 27,953,049 –

(1) The 36,069,395 options on issue at 30 April 2010 expired on that date. (2) A free bonus issue of one bonus option for every four shares held was made to shareholders registered on 14 May 2010.

(ii) Unlisted Options

Parent2011

No.

Parent2011

$

Parent2010

No.

Parent2010

$

Unlisted Options

At the beginning of the reporting period (1) 75,000 – 125,000 –Exercise of Staff Options (2) (75,000) – (50,000) –

At Reporting Date – – 75,000 –

(1) These options were granted under the Tranzact Financial Services Limited Directors, Executives and Staff Share Option Plan enabling the holder to acquire a share for $0.04 with an exercise date of 1 July 2009 and an expiry date of 1 July 2011.

(2) Following the exercise of these options, 75,000 equity securities were issued on 4 April 2011.

Information relating to the Tranzact Financial Services Limited Directors, Executives and Staff Share Option Plan is set out in Note 19.

22. Reserves Employee Option Reserve The employee option reserve records items recognised as expenses on valuation of employee share options.

Other Reserve The other reserve records items recognised as expenses for share based payments in return for services from external parties.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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23. Key Management Personnel Disclosures

(a) Key management personnel compensation

Consolidated2011

$

Consolidated2010

$

Short-term employee benefits 754,589 593,963Post-employment benefits 39,014 68,973 Other long-term benefits 2,712 14,609Share-based payments 39,207 37,477

Total 835,522 715,022

Further information regarding the identity of key management personnel and their compensation can be found in the Audited Remuneration Report contained in the Directors’ Report on pages 10 to 14 of this Annual Report.

(b) Equity Instruments

(i) Options and Rights Holdings

Details of options and rights held directly, indirectly or beneficially by key management personnel and their related parties are as follows:

2011Name

Balance at 01 July 10

Granted as compensation

Options Exercised

Balance at 30 June 11

Total Vested at 30 June 11

Total vested and exercisable at

30 June 11

Mr P L Harry AM (1) 868,709 – – 868,709 868,709 868,709

Mr W A Ractliffe (2) 17,235,932 – – 17,235,932 17,235,932 17,235,932Mr R L Rodgers (3) 437,709 – – 437,709 437,709 437,709Mr A S T Yeo (4) 16,851,432 – – 16,851,432 16,851,432 16,851,432Ms V T Luong 27,250 – – 27,250 27,250 27,250Mr G Scott (5) 41,288 – – 41,288 41,288 41,288Mr D Beattie (5) 38,075 – – 38,075 38,075 38,075Mr A Wilson (5) 220,075 – – 220,075 220,075 220,075Mrs C Dixon 85,625 – – 85,625 85,625 85,625

(1) A company associated with Mr Harry, Conclude Pty Ltd, holds 456,000 options and Mr Harry also holds 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19).

(2) A company associated with Mr Ractliffe, Gro-Aust Holdings Ltd, holds 16,326,004 options. In addition, Mr Ractliffe holds 384,500 options as trustee of the Ractliffe Australian Family Trust and 112,719 options as trustee of the Grosvenor Employee Share Scheme. Mr Ractliffe also holds 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19).

(3) Mr Rodgers holds 25,000 options, plus a further 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19).

(4) A company associated with Mr Yeo, Gro-Aust Holdings Ltd, holds 16,326,004 options. In addition, Mr Yeo holds 112,719 options as trustee of the Grosvenor Employee Share Scheme and also holds 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19).

(5) Mr Scott, Mr Beattie and Mr Wilson are not employees of the Group but have been assigned to the Group as part of the management arrangement between the Company and Grosvenor Financial Services Group Limited.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 57

23. Key Management Personnel Disclosures (continued)

(b) Equity Instruments (continued)

(i) Options and Rights Holdings (continued)

2010Name

Balance at 01 July 09

Granted as compensation

Options Exercised

Options expired

30 April 2010

Bonus options issued

14 May 2010Balance at

30 June 2010Total Vested at

30 June 2010

Total vested and

exercisable at 30 June 2010

Mr P L Harry AM (1) 1,324,000 – – (1,324,000) 868,709 868,709 868,709 868,709

Mr W A Ractliffe (2) 14,094,445 – – (14,094,445) 17,235,932 17,235,932 17,235,932 17,235,932Mr R L Rodgers (3) 700,000 – – (700,000) 437,709 437,709 437,709 437,709Mr A S T Yeo (4) 13,586,445 – – (13,586,445) 16,851,432 16,851,432 16,851,432 16,851,432Mr C Yip (5) (6) 346,830 – – (346,830) 53,003 53,003 53,003 53,003Ms V T Luong 100,000 – – (100,000) 27,250 27,250 27,250 27,250Mrs C Dixon – – – – 85,625 85,625 85,625 85,625

(1) 1,324,000 options held by P L Harry AM and related parties expired on 30 April 2010 without being exercised. A company associated with Mr Harry, Conclude Pty Ltd, holds 456,000 Options and Mr Harry also holds 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19). Options currently held were issued in the Bonus Options Issue to all existing shareholders on 14 May 2010.

(2) 14,904,445 options held by W A Ractliffe and related parties expired on 30 April 2010 without being exercised. A company associated with Mr Ractliffe, Gro-Aust Holdings Ltd, holds 16,326,004 options. In addition, Mr Ractliffe holds 384,500 options as trustee of the Ractliffe Australian Family Trust and 112,719 options as trustee of the Grosvenor Employee Share Scheme. Mr Ractliffe also holds 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19). Options currently held were issued in the Bonus Options Issue to all existing shareholders on 14 May 2010.

(3) 700,000 options held by R L Rodgers and related parties expired on 30 April 2010 without being exercised. Mr Rodgers holds 25,000 options, plus a further 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19), issued in the Bonus Options Issue to all existing shareholders on 14 May 2010 .

(4) 13,586,445 options held by A S T Yeo and related parties expired on 30 April 2010 without being exercised. A company associated with Mr Yeo, Gro-Aust Holdings Ltd, holds 16,326,004 options. In addition, Mr Yeo holds 112,719 options as trustee of the Grosvenor Employee Share Scheme and also holds 412,709 options as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19). Options currently held were issued in the Bonus Options Issue to all existing shareholders on 14 May 2010.

(5) These options held by the trustees of the Grosvenor Employee Share Scheme expired on 30 April 2010 without being exercised.(6) Mr Yip is not an employee of the Group but has been assigned to the Group as part of the management arrangement between the Company

and Grosvenor Financial Services Group Limited. This arrangement ceased on 30 June 2010.

(ii) Shareholdings Details of equity instruments (other than options and rights) held directly, indirectly or beneficially by key management

personnel and their related parties are as follows(8):

2011Name

Balance at 1 July 2010

Granted as compensation(6)

Other changes (1)

Balance at 30 June 11

Balance held nominally

Mr P L Harry AM (2) 3,474,836 – 97,498 3,572,334 1,748,334Mr W A Ractliffe (5) 68,943,726 – 1,510,637 70,454,363 2,199,209Mr R L Rodgers (3) 1,750,836 – 97,498 1,848,334 1,748,334Mr A S T Yeo (4) 67,405,726 – 1,510,637 68,916,363 2,199,209Mr G Scott (7) 165,150 – – 165,150 – Mr D Beattie (7) 152,300 – – 152,300 –Mr A Wilson (7) 880,300 – – 880,300 –Ms V T Luong 289,000 126,667 – 415,667 – Mrs C Dixon 412,500 240,000 – 652,500 –Mr M Beydoun 150,000 133,333 – 283,333 –

(1) Refers to shares purchased, sold or forfeited during the financial year. (2) A company associated with P L Harry AM, Conclude Pty Ltd, holds 1,824,000 shares. Mr Harry also holds 1,748,334 shares as trustee of the

TFS Group Employee Bonus and Share Scheme (refer Note 19). (3) R L Rodgers holds 1,748,334 shares as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19) plus a further 100,000

in his own name. (4) A company associated with A S T Yeo, Gro-Aust Holdings Ltd, holds 65,304,015 shares. In addition, Mr Yeo holds 450,875 shares as trustee

of the Grosvenor Employee Share Scheme and also holds 1,748,334 shares as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19).

(5) A company associated with W A Ractliffe, Gro-Aust Holdings Ltd, holds 66,717,154 shares. In addition, Mr Ractliffe holds 1,538,000 shares as trustee of the Ractliffe Australian Family Trust and 450,875 shares as trustee of the Grosvenor Employee Share Scheme. Mr Ractliffe also holds 1,748,334 shares as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19).

(6) Held by the trustees of the TFS Group Employee Bonus and Share Scheme.(7) Mr Scott, Mr Beattie and Mr Wilson are not employees of the Group but have been assigned to the Group as part of the management

arrangement between the Company and Grosvenor Financial Services Group Limited.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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58 Tranzact Financial Services Limited | Annual Report 2011

23. Key Management Personnel Disclosures (continued)

(b) Equity Instruments (continued)

(ii) Shareholdings(continued) Details of equity instruments (other than options and rights) held directly, indirectly or beneficially by key management

personnel and their related parties are as follows.

2010Name

Balance at 1 July 2009

Granted as compensation(6)

Other changes (1)

Balance at 30 June 10

Balance held nominally

Mr P L Harry AM (2) 3,941,556 – (466,720) 3,474,836 1,650,836Mr W A Ractliffe (5) 69,869,893 – (926,167) 68,943,726 2,101,711Mr R L Rodgers (3) 2,217,556 – (466,720) 1,750,836 1,650,836Mr A S T Yeo (4) 68,331,893 – (926,167) 67,405,726 2,101,711Mr C Yip (7) 346,830 – (134,820) 212,010 – Ms V T Luong 220,000 60,000 9,000 289,000 – Mrs C Dixon – 140,000 272,500 412,500 –Mr M Beydoun – 150,000 – 150,000 –

1) Refers to shares purchased, sold or forfeited during the financial year.(2) A company associated with P L Harry AM, Conclude Pty Ltd, holds 1,824,000 shares. Mr Harry also holds 1,650,836 shares as trustee of the

TFS Group Employee Bonus and Share Scheme (refer Note 19).(3) R L Rodgers holds 1,650,836 shares as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19). (4) A company associated with A S T Yeo, Gro-Aust Holdings Ltd, holds 65,304,015 shares. In addition, Mr Yeo holds 450,875 shares as trustee

of the Grosvenor Employee Share Scheme and also holds 1,650,836 shares as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19).

(5) A company associated with W A Ractliffe, Gro-Aust Holdings Ltd, holds 65,304,015 shares. In addition, Mr Ractliffe holds 1,538,000 shares as trustee of the Ractliffe Australian Family Trust and 450,875 shares as trustee of the Grosvenor Employee Share Scheme. Mr Ractliffe also holds 1,650,836 shares as trustee of the TFS Group Employee Bonus and Share Scheme (refer Note 19).

(6) Held by the trustees of the TFS Group Employee Bonus and Share Scheme.(7) Mr Yip is not an employee of the Group but has been assigned to the Group as part of the management arrangement between the Company and

Grosvenor Financial Services Group Limited.

(c) Other transactions with Key Management Personnel A firm associated with Mr R L Rodgers provides tax consulting services to the Group on an arm’s length basis and received

fees during the year of $5,500 (2010: $5,500).

Messrs W A Ractliffe and A S T Yeo are also directors of Grosvenor Financial Services Group Limited and its associated companies. For transactions between the Grosvenor Group and the Tranzact Group, refer to Note 25.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 59

24. Dividends The following dividends were paid by the Group in the year ended 30 June 2011:

Ordinary Shares

Consolidated2011$’000

Consolidated2010$’000

Interim dividend for year ended 30 June 2011 of 0.25 cents per share (2010: 0.25 cents) per fully paid share paid on 8 April 2011 (2010: 9 April 2010)

278 389

Final dividend for year ended 30 June 2010 of 0.35 cents per share (2009: 0.35 cents) per fully paid share paid on 8 October 2010 (2009: 9 October 2009)

389 288

Total dividends paid 667 677

Dividends not recognised as a liabilitySince the year end the Directors have recommended the payment of a final fully franked dividend of 0.45 cents per share (2010: 0.35 cents). The aggregate amount of the proposed dividend expected to be paid on 7 October 2011, but not recognised as a liability at year end, is $498,298 (2010: $389,439).

Franking Credits

Consolidated2011$’000

Consolidated2010$’000

Franking credits available for subsequent financial years at a tax rate of 30% 154 99

Franking credits from the receipt of dividends 119 51

Franking credits attached to dividends paid (286) (290)

Franking credits attached to income tax paid 223 294

The amount of franking credits available for future reporting periods 210 154

The impact on the franking account of dividends recommended after year end but before the financial report was authorised for issue and not recognised as a liability at year end will be a reduction on the franking account of $214,554 (2010: $169,902). Income tax totalling $40,496 was paid to the Australian Taxation Office on 20 July 2011 creating an additional 40,496 franking credits available for distribution.

25. Related Parties

Directors and other Key Management PersonnelDisclosures relating to Directors are set out in Note 23.

Parent entityTranzact Financial Services Limited is the parent entity of the Group. Grosvenor Financial Services Group Limited is the ultimate parent entity of the Tranzact Financial Services Group. Grosvenor Financial Services Group Limited owns 75% as at 30 June 2011 (2010: 75%) of Gro-Aust Holdings Limited which owns 59.97% of the ordinary shares in Tranzact Financial Services Limited at 30 June 2011 (2010: 58.45%).

SubsidiariesDetails of subsidiaries and ownership interests are disclosed in Note 28.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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60 Tranzact Financial Services Limited | Annual Report 2011

25. Related Parties (continued)

Transactions between Tranzact Financial Services Limited and its subsidiaries during the years ended 30 June 2011 and 30 June 2010 consisted of:

(a) loans advanced between members of the wholly-owned group and interest thereon (b) loans repaid by members of the wholly-owned group and interest thereon (c) management fees paid to Tranzact Financial Services Limited (d) payments between the companies in the Group for the allocation of tax expenses and benefits (refer Note 4).

Parent Entity2011$’000

Parent Entity2010$’000

Transactions with entities in the Group:

Management fees received by Tranzact Financial Services Limited 4,073 3,100Interest on loan from subsidiaries to Tranzact Financial Services Limited 117 79Interest on loan from Tranzact Financial Services Limited to subsidiaries 112 –Payments by subsidiaries to Tranzact Financial Services Limited for the allocation of income tax expenses 247 15

Loans advanced and repaid:

Amounts of loans advanced from subsidiaries to Tranzact Financial Services Limited 1,480 1,730Amounts of loans repaid by Tranzact Financial Services Limited 540 985Amounts of loans advanced by Tranzact Financial Services Limited to subsidiaries 3,324 –Amounts of loans advanced by Tranzact Financial Services Limited to associates 180 –

Outstanding balances between entities in the Group at balance date:

Current receivables 7 –Loans from subsidiaries to Tranzact Financial Services Limited 3,138 2,198Loans to subsidiaries by Tranzact Financial Services Limited 3,324 –Loans to associates by Tranzact Financial Services Limited 180 –

Ultimate Parent and associated companies Consolidated2011$’000

Consolidated2010$’000

Transactions between the Group and the ultimate parent entity and its associated companies:Management/administration fees paid to:Grosvenor Financial Services Group Limited (‘GFSG’) 521 497Other expenses reimbursed to GFSG 412 359Consulting fee charged by Tranzact to GFSG 109 96

Outstanding balances between the Group and the ultimate parent and its associated companies at balance date:Other Payables 2 11

The Grosvenor Financial Services Group Limited (New Zealand), of which Messrs Yeo and Ractliffe are directors, provides a number of services to the Tranzact Financial Services Limited Group. Grosvenor Financial Services Group Limited owns 75% of Gro-Aust Holdings Limited at 30 June 2011 (2010: 75%), which owns 100% of GFS Aust Pty Ltd at 30 June 2011 (2010: 100%).

Loans receivable from entities in the Group are secured by a debenture over all the assets and operations of the Borrower and any of its subsidiaries, loans are repayable at the option of the lender and interest is charged at the ANZ commercial bill rate applicable at the end of each month, with an average for 2011 of 4.50% (2010: 4.19%).

Loans receivable from the ultimate parent entity and its associated companies are unsecured, interest-free and short term in nature with are no fixed repayment terms.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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26 Auditor’s Remuneration

Consolidated2011

$

Consolidated2010

$

Audit & assurance fees – BDO 115,125 121,500Other services – Non BDO 41,082 27,965

156,207 149,465

BDO was first appointed as auditor of Tranzact Financial Services Limited and its wholly-owned subsidiaries for the year ended 30 June 2008.

Non BDO – Other services fees paid relate to internal controls reviews.

27. Commitments For Expenditure

(a) Operating Leases

Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:

Consolidated2011$’000

Consolidated2010$’000

Not later than one year 324 359Later than one year but not later than five years 787 863Later than five years – 70Commitments not recognised in the financial statements 1,111 1,292

The parent entity’s commitment is for is a property lease which is non-cancellable. It has a three-year term expiring on 31 May 2013. The lease payments are subject to annual review.

In addition to the parent entity lease, the group is committed to a property lease in Brisbane expiring in November 2015 and plant and equipment with various expiry dates.

(b) Finance Leases

Commitments for minimum lease payments in relation to non-cancellable finance leases are payable as follows:

Consolidated2011$’000

Consolidated2010$’000

Not later than one year 9 9Later than one year but not later than five years – 9Commitments recognised in the financial statements 9 18

Less future finance charges – –

Commitments not recognised in the financial statements 9 18

The finance lease on plant and equipment, which commenced in 2007 has 1 year remaining and had a carrying value of $8,690 at 30 June 2011 (2010: $18,170). These are included in Other Creditors and have no interest charged on them.

(c) Capital Expenditure Commitments

There are no Capital expenditure commitments contracted for at 30 June 2011 (2010: $nil).

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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28. Investments In Subsidiaries

Name of EntityClass of

Share

Equity Holding

2011 %

Equity Holding

2010%

Value of Parent Entity's

Investment 2011

Value of Parent Entity's

Investment 2010

Tranzact Consulting Ltd Ordinary 100.00 100.00 123,442 123,442Tranzact Investment Services Ltd Ordinary 100.00 100.00 5,456,422 5,456,422Asset Custodian Nominees (Aust) Pty Ltd (1) Ordinary 100.00 100.00 – – Australia First Financial Services Pty Ltd Ordinary 100.00 100.00 1,570,000 1,570,000Tranzact Superannuation Services Pty Ltd (2) Ordinary 100.00 100.00 – – Tranzact Financial Solutions Pty Ltd (2) Ordinary 100.00 100.00 – – Australian Superannuation Consultants Pty Ltd Ordinary 100.00 100.00 811,883 811,883Total Super Pty Ltd Ordinary 100.00 100.00 2,801,794 2,801,794SMSF Administrators Pty Ltd (3) Ordinary – 100.00 – – SMSF Strategist Deeds Ltd (4) Ordinary – 100.00 – – Camelot Financial Services Pty Ltd (5) Ordinary 61.38 – – –Bob Templetons Australia Pty Ltd (6) Ordinary 61.38 – – – Templetons Financial Planning Pty Ltd (6) Ordinary 61.38 – – –

10,763,541 10,763,541

(1) Fully owned subsidiary of Tranzact Investment Services Ltd. (2) Fully owned subsidiary of Australia First Financial Services Pty Ltd. (3) Fully owned subsidiary of Australian Superannuation Consultants Pty Ltd deregistered on 26 August 2010.(4) Fully owned subsidiary of Australian Superannuation Consultants Pty Ltd deregistered on 2 September 2010. (5) Majority owned subsidiary of Australia First Financial Services Pty Ltd. (6) Fully owned subsidiary of Camelot Financial Services Pty Ltd.

All companies listed above were incorporated in Australia.

The proportion of ownership interest is equal to the proportion of voting power held.

29. Business Combination

Effective 1 October 2010, Tranzact acquired a 60.52% interest in Camelot Financial Services Pty Ltd (‘Camelot’). Camelot, together with Templetons Administrative Services Pty Limited (associate investment acquired in the year – refer to Note 12) forms the Templetons business. Templetons is a Brisbane-based business specialising in the provision of insurance and financial planning services. The consideration for Camelot was paid in cash for a sum of $2,600,000, drawing on the Group’s St George Bank loan facility. There is no contingent consideration payable.

The assets and liabilities recognised as a result of the acquisition are as follows:

Fair Value$’000

Intangible assets – client contracts and relationships 1,416Deferred tax liability (425)Net identifiable assets and liabilities acquired 991Goodwill on acquisition 1,609

Net assets acquired 2,600

Total purchase consideration in cash 2,600

Intangible assets are at fair value and are based on the recurring income stream expected to be realised from existing clients from contracts and relationships in place at the time of acquisition.

The goodwill is attributable to the profitability that will be generated from new business and from the strategic benefit this acquisition will bring from the extension of the Group’s Partnership For Growth model in Australia.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 63

29. Business Combination (continued)

Legal fees, stamp duties and other acquisition costs relating to the acquisition amounting to $76,814 have been included in Administration expenses in the profit or loss.

In the nine months from acquisition date, the Camelot business contributed total revenues of $607,969 and $273,526 profit after tax to the consolidated group, of which revenue of $373,171 and net profit of $167,890 after tax were attributable to the Owners of the Company.

Disclosure of the impact of revenue and profit after tax within the group should Camelot have been acquired on 1 July 2010 has not been made. This is due to the impracticability of calculating these figures due to changes in the business since acquisition and the seasonality of revenue and profit after tax throughout the year.

On 24 June 2011, Tranzact paid, in cash consideration, a capital call to Camelot amounting to $332,658, increasing the shareholding to 61.38% which represents the Group’s year end shareholding.

In accordance with the accounting policy set out in Note 1(p), the Group elected to recognise the non-controlling interests in Camelot Financial Services Pty Ltd at its proportionate share of the acquired net identifiable assets.

There were no acquisitions in the year ended 30 June 2010.

30. Financial Instruments

The Group’s principal financial instruments comprise the following:

(a) Cash, Trade and Other Receivables;(b) Held to Maturity, Available for Sale, Shares in Associates;(c) Derivatives;(d) Trade and Other Payables; and(e) Interest Bearing Liabilities

Categories of Financial Instruments

Consolidated2011$’000

Consolidated2010$’000

Financial AssetsCash & cash equivalents 811 2,093

Trade receivables 568 608

Available-for-sale financial assets 5,551 5,214

Shares in associates 1,618 1,249

8,548 9,164

Financial Liabilities

Bank Bills 1,376 –

Derivatives 117 105

Trade and Other Payables 608 589

2,101 694

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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30. Financial Instruments (continued)

Categories of Financial Instruments

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these standards.

The main risks arising from the Group’s financial instruments are market risk (including foreign currency risk and interest rate risk), liquidity risk and credit risk. Senior management, in conjunction with the Board, review and agree policies for managing each of these risks.

The risks arising in 2011 are unchanged from those of the previous year.

Risk Exposures and Responses

Market Risk

Market risk arises from the use of interest bearing, tradable and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates (currency risk), interest rates (interest rate risk), or other market factors (other price risk).

(i) Foreign Exchange Risk

As a result of operations in New Zealand the Group’s balance sheet is impacted by movements in exchange rates. This risk is assessed on an ongoing basis and forward exchange contracts are taken up from time to time as deemed appropriate. While the forward exchange contracts are not designated hedges, the strategy is to limit the un-hedged amount on the financial assets (being Partnership for Growth investments in New Zealand) to $100,000 at any point in time.

The Group also has currency exposures arising from transactions in a currency other than the Group’s functional currency. Approximately 9% of the Group’s revenues are denominated in currencies other than the reporting currency of the Group. These revenues are partially offset by expenses incurred in the same currency.

At 30 June 2011, the Group had the following exposure to foreign currencies:

Consolidated2011$’000

Consolidated2010$’000

Financial AssetsTrade and other receivables 182 219Financial assets 5,495 5,158

5,677 5,377

Financial Liabilities

Derivatives – forward contracts 5,438 5,115

Net exposure 239 262

The following sensitivity is based on the foreign currency risk exposures in existence at the balance sheet date. As at 30 June 2011, had the Australian Dollar moved, with all other variables held constant, post tax profit and equity would have been affected as illustrated in the table below.

Management have assessed the closing net position of each entities assets in the table below for movements in a currency to highlight the potential impact on the net asset position. There were no material impacts identified based on the parameters used.

Post Tax ProfitHigher/(Lower)

Judgements of reasonably possible movements2011$’000

2010$’000

Consolidated EntityAUD/NZD + 10% 24 26

AUD/NZD – 10% (24) (26)

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 65

30. Financial Instruments (continued)

(ii) Interest Rate Risk

Interest rate risk is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates.

The following table details the Group’s exposure to interest rate risk as at 30 June 2011:

Consolidated2011

Weighted Average Effective

Rate

Variable Interest

Rate$’000

Fixed Interest Rate maturing

less than 1 year$’000

Non-interest Bearing

$’000Total

$’000

Interest Bearing AssetsCash at bank 4.5% 722 – – 722 Cash on deposit 5.5% – 89 – 89Unsecured loans (1) 13.0% 5,495 – – 5,495

Total Interest Bearing Assets 6,217 89 – 6,306

Non-interest Bearing AssetsEquity investments – – 1,674 1,674 Other non-interest bearing assets – – 568 568

Total Non-interest Bearing Assets – – 2,242 2,242

Total Assets 6,217 89 2,242 8,548

Interest Bearing Liabilities Bank bills 5.7% 1,376 – – 1,376

Total Interest Bearing Liabilities 1,376 – – 1,376

Non-interest Bearing Liabilities – – 608 608

Total liabilities 1,376 – 608 1,984

Net Assets 4,841 89 1,634 6,564

(1) Relates to loans as part of the Partnership for Growth which are repayable at the discretion of the borrower (which could potentially be immediately) and therefore have no fixed maturity profile.

The following table details the Group’s exposure to interest rate risk as at 30 June 2010:

Consolidated2010

Weighted Average Effective

Rate

Variable Interest

Rate$’000

Fixed Interest Rate maturing

less than 1 year$’000

Non-interest Bearing

$’000Total

$’000

Interest Bearing AssetsCash at bank 2.6% 2,014 – – 2,014Cash on deposit 4.8% 79 – – 79Unsecured loans (1) 12.6% 5,158 – – 5,158

Total Interest Bearing Assets 7,251 – – 7,251

Non-interest Bearing AssetsEquity investments – – 1,185 1,185Other non-interest bearing assets – – 608 608

Total Non-interest Bearing Assets – – 1,793 1,793

Total Assets 7,251 – 1,793 9,044

Interest Bearing Liabilities Bank bills – – – –

Total Interest Bearing Liabilities– – – –

Non-interest Bearing Liabilities – – 589 589

Total liabilities – – 589 589

Net Assets 7,251 – 1,204 8,455

(1) Relates to loans as part of the Partnership for Growth which are repayable at the discretion of the borrower (which could potentially be immediately) and therefore have no fixed maturity profile.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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66 Tranzact Financial Services Limited | Annual Report 2011

30. Financial Instruments (continued)

(ii) Interest Rate Risk (continued)

The Group manages its interest rate risk by the use of fixed rate instruments and by spreading the tenure of any debt to optimise the balance between costs of funds and liquidity.

Similarly, in terms of interest rate risk on cash and deposits the Group seeks to maximise the interest earned on these funds balanced against the length of the investment and impact on liquidity.

Sensitivity Analysis

The following sensitivity analysis is based on the interest rate risk exposures in existence as at balance date.

At 30 June 2011, if interest rates had moved, as illustrated in the table below, with all other variables held constant, post tax profit would have been affected as follows:

Post Tax ProfitHigher/(Lower)

Judgements of reasonably possible movements2011$’000

2010$’000

Consolidated Entity+ 0.75% (75 basis points) 37 54- 0.50% (50 basis points) (25) (36)

The movements in profit are due to movements in interest costs from variable rate debt and cash movements.

(iii) Liquidity Risk

Liquidity risk is the risk that the Group may encounter difficulties raising funds to meet commitments associated with financial instruments, e.g. borrowing repayments.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities and bank loans.

The Group minimises liquidity risk by maintaining a significant level of cash and cash equivalents, monitoring of actual performance to budgets, regular cash flow forecasting as well as ensuring the Group has access to use of credit facilities as and when required.

The Group has a credit standby arrangement, being a commercial bill facility provided by St George Bank, a division of Westpac Banking Corporation and considers there is no liquidity risk.

At balance date, the Group has $1,624,000 of unused credit facilities available for its immediate use (Note 32 (c)).

Maturity Analysis of Financial Liabilities The risks from the values shown in the table below, reflects a balanced view of cash inflows and outflows. Leasing obligations, trade payables and other financial liabilities mainly originate from the financing of assets used in ongoing operations.

Consolidated 2011Financial Liabilities

Carrying Amount

$’000

ContractualCash Flows

$’000< 6 mths

$’0006 – 12 mths

$’0001 – 3 years

$’000> 3 years

$’000

Non-derivativesBank Bills (1) 1,376 1,376 – – 1,376 – Trade and Other Payables 608 608 608 – – –

DerivativesForward Exchange Contracts (2) 5,438 5,438 2,801 2,637 – –

TOTAL 7,422 7,422 3,409 2,637 1,376 –

(1) No further interest is paid on these bank bills as the interest is paid upfront at the time of the drawdown. Whilst the bill has a repayment date within 6 months, this amount can be rolled over up to the date of expiry of the bank facility, being 16 August 2013.

(2) The gross liability shown is offset by the value of the foreign exchange expected to be received of $5,320,323, resulting in a net liability of $117,424.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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Tranzact Financial Services Limited | Annual Report 2011 67

30. Financial Instruments (continued)

(iii) Liquidity Risk (continued)

Consolidated 2010Financial Liabilities

Carrying Amount

$’000

ContractualCash Flows

$’000< 6 mths

$’0006 – 12 mths

$’0001 – 3 years

$’000> 3 years

$’000

Non-derivativesTrade and Other Payables 589 589 576 5 8 –

DerivativesForward Exchange Contracts (1) 5,115 5,115 2,460 2,655 – –

TOTAL 5,704 5,704 3,036 2,660 8 –

(1) The gross liability shown is offset by the value of the foreign exchange expected to be received of $5,010,370, resulting in a net liability of $104,632.

(iv) Credit Risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group has policies in place to manage these risks. The Group has adopted a policy of only dealing with reputable established businesses as a means of mitigating the risk of financial loss from defaults. The maximum credit risk for financial assets recognised on the balance sheet is the carrying amount less, where applicable, any provisions for doubtful debts.

– Financial Interests in the Camelot Partnership (as part of the Partnership for Growth Strategy) The Company has $5,495,479 in loans and interest in Camelot Financial Advisers Limited. The loans and financial interests

in the Camelot Partnership are unsecured and have a negative pledge. There is no material credit risk exposure to the Group as prior to the advisers joining the Camelot Partnership, they undergo strict due diligence and vetting processes to ensure they meet the necessary revenue and business value expectations. In addition Camelot Financial Advisers Limited, through its subsidiary company, retains the right to assume day to day control of the partnership business in the event of non performance of the operating partner. All investments are performing at or better than expectation at the time of the investment being undertaken. There are no indications of impairment. Ongoing monitoring is conducted to ensure there is no impairment going forward.

– Trade and Other Receivables The Company has $42,758 in fees owing from various superannuation funds under the Trusteeship of Tidswell Financial

Services Limited. There is no material credit risk exposure as the Company is the administrator of these funds and part of its monthly administration process is to arrange for fees to be paid to the various service providers.

– Foreign Exchange Contracts and Bank Deposits There are $810,643 of funds on deposit for the Consolidated Entity. The credit risk on liquid funds is limited because the

counterparties are major banks with ratings of AA or higher assigned by international credit rating agencies.

(v) Net Fair Values The carrying amount of all financial assets and liabilities recorded in the financial statements approximates their net values.

Estimation of Fair Values The net fair values of financial assets and liabilities is determined using a hierachy as follows:

Level one – quoted prices (unadjusted) in active markets for identical assets and liabilities

Level two – inputs other than quoted prices included in level one that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices).

Level three – inputs for the asset or liability that are not based on observable market data (unobservable inputs).

All financial instruments carried at fair value are classified as level two within the fair value heirarchy.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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68 Tranzact Financial Services Limited | Annual Report 2011

30. Financial Instruments (continued)

The net fair values of: – Term receivables and fixed interest securities and bonds are determined by discounting the cash flows, at the market

interest rates of similar securities, to their present value.

– Unlisted investments where there is no organised financial market, the net fair value has been based on a reasonable estimation of the underlying net assets or discounted cash flows of the investment.

– Other loans and amounts due are determined by discounting the cash flows, at market interest rates of similar borrowings, to their present value.

– Forward exchange contracts are the recognised unrealised gain or loss at balance date determined from the current forward exchange rates for contracts with similar maturities.

– Other assets and other liabilities approximate their carrying value.

– The Partnership for Growth New Zealand interests are loans granted for interests in financial and insurance advisory businesses. The valuation of these financial interests utilises an equity style valuation methodology. These instruments do not have a quoted market price in an active market that is reliably measurable of their market value. The range of values applicable to these instruments is significant and the probabilities of the various estimates cannot be reasonably assessed. The values depend heavily on the nature of the revenue streams, the sustainability of the revenue streams over time, and the level of continuing involvement of the practice principals in the business. The Board has accordingly retained these assets at cost.

31. Capital Risk Management

The Group considers its capital to comprise of its ordinary share capital less accumulated losses.

In managing its capital, the Group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions and through the payment of dividends. In order to achieve this objective, the Group assesses each relevant transaction to ensure risks and returns are at an acceptable level and also to maintain a sufficient funding base to enable the Group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through altering its dividend policy, new share issues, or the reduction of debt, or buy back program, the Group considers not only its short-term position but also its long-term operational and strategic objectives.

The increase in borrowing at a Group level has been brought about by the Board’s decision to take on additional debt finance to fund acquisitions. The Group regularly reviews its capital requirements and determines whether or not to increase or decrease its borrowings. There have been no other significant changes to the Group’s capital management objectives, policies and processes in the year nor has there been any change in what the Group considers to be its capital.

The Group does not currently have a gearing ratio policy.

During the period the Group complied with all externally imposed capital requirements and covenants to which it is subject.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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32. Cash Flow Information (continued)

(a) Reconciliation of Profit After Income Tax to Net Cash Inflow from Operating Activities

Consolidated2011$’000

Consolidated2010$’000

Profit After Income Tax 1,712 1,509

Non-Cash Flows in Operating Profit:Provision for depreciation 125 133Provision for amortisation 627 297Increase in provision for staff entitlements 82 3Share of profit of associated entity (128) (120)Unrealised foreign exchange losses 197 67

Changes in Assets and Liabilities:(Increase)/decrease in current receivables (131) 632(Increase) in prepayments (64) (1)(Increase) in deferred tax assets (84) (73)(Decrease) in trade and other payables (45) (242)Increase /(decrease) in current tax liabilities 234 (99)(Decrease) in deferred tax liabilities (124) (94)

Net Cash Inflows from operating activities 2,401 2,012

(b) Non-Cash Financing and Investing Activities

Equity Securities Issued

Consolidated2011

No.

Consolidated2010

No.

Consolidated2011$’000

Consolidated2010$’000

Ordinary Shares Issued (1) (3) 75,000 50,000 8 6Ordinary Shares Cancelled (under buy back arrangement)(2) (4) (555,400) (1,362,146) – (200)Options over Ordinary Shares Issued 2007: expired 2010 (5) – (36,069,395) (86) –Options over Ordinary Shares Issued May 2010(6) – 27,953,049 – –

12 months ended 30 June 2011:

(1) 75,000 equity securities were issued on 4 April 2011 at $0.04 per security following the exercise of unlisted options under the Staff Share Option Plan. The exercise price was $0.04 per share, and a transfer of $4,613 was made from the employee option reserve.

(2) Between July and September 2010, 499,900 equity securities were purchased on market at $0.15 per security, and in January and February 2011, a further 55,500 securities at $0.20 per security, under the share buy back scheme announced on 29 September 2008 and subsequent extension notice of 6 October 2010. These securities have subsequently been cancelled.

12 months ended 30 June 2010:(3) 50,000 equity securities were issued on 30 July 2009 at $0.04 per security following the exercise of unlisted options under the Staff Share

Option Plan. The exercise price was $0.04 per share, and a transfer of $3,500 was made from the employee option reserve.

(4) 1,362,146 equity securities were purchased on market between October 2009 and June 2010 at prices between $0.13 and $0.15 per security under the share buy back scheme announced on 29 September 2008 and subsequent extension notice on 28 September 2009. These securities have subsequently been cancelled.

(5) 36,069,395 options issued between May 2007 and November 2008, enabling the holder of each option to acquire a further share at $0.30 anytime before 30 April 2010, expired on 30 April 2010 with no options having been exercised.

(6) 27,953,049 free bonus options were issued to existing shareholders on 14 May 2010 enabling the holder of each option to acquire a further share at $0.25 anytime before 31 October 2012.

Notes to the Financial Statements for the year ended 30 June 2011 (continued)

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70 Tranzact Financial Services Limited | Annual Report 2011

32. Cash Flow Information (continued)

(c) Credit Standby Arrangements with Banks

Consolidated2011$’000

Consolidated2010$’000

Credit facility 3,000 3,000Amount utulised (1,376) –Amount unused at reporting date 1,624 3,000

The above is a commercial bill variable interest rate facility of $3,000,000 provided by St George Bank, a division of Westpac Banking Corporation (2010: $3,000,000). This is a three year facility dated 16 August 2010.

33. Parent Entity InformationThe following information relates to the parent entity, Tranzact Financial Services Limited. The information presented has been prepared using accounting policies that are consistent with those presented in Note 1.

Parent Parent

2011$’000

2010$’000

Current assets 3,874 635Non current assets 14,495 14,532Total assets 18,369 15,167

Current liabilities 4,926 2,539Non current liabilities 90 46Total liabilities 5,016 2,585

Net Assets 13,353 12,582

Issued capital 19,760 19,842Retained earnings (6,446) (7,299)Reserves 39 39

Total Shareholder’s Equity 13,353 12,582

Profit for the year 1,521 783

Total Comprehensive Income 1,521 783

The parent has not provided guarantees in relation to the debts of its subsidiaries as at 30 June 2011.

The parent company has no contingent liabilities as at 30 June 2011 (2010: nil)

The parent entity does not have any commitments for expenditures as at 30 June 2011.

34. Contingent LiabilitiesAt 30 June 2011, contingent liabilities consisted of one claim against a subsidiary of the Company. The most recent settlement offer from the claimant was $150,000. The Company recognises that a contingent liability between nil and $150,000 existed at year end in relation to this claim. The Company denies any liability in relation to this claim.

The contingent liabilities and values disclosed above are unchanged from those reported at 30 June 2010.

35. Events Occurring After Reporting Date

Subsequent to the reporting date the Group has secured an extension to its existing banking facility with St. George for $5,000,000 for the funding of acquisitions. The total facility is now comprised of a working capital facility of $3,000,000 and a standby acquisition facility of $5,000,000. Other than this, the Directors are not aware of any matter or circumstance that has arisen that has significantly affected, or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in the financial years subsequent to 30 June 2011.

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Tranzact Financial Services Limited | Annual Report 2011 71

Tranzact Financial Services Limited and Controlled Entities Directors’ Declaration

ABN 84 089 997 731

The Directors of the Company declare that:

1. The financial statements, comprising the statement of comprehensive income, statement of financial position, statement of cash flows, statement of changes in equity, accompanying notes, are in accordance with the Corporations Act 2001 and:

(a) comply with Accounting Standards and the Corporations Regulations 2001; and

(b) give a true and fair view of the consolidated entity’s financial position as at 30 June 2011 and of the performance for the year ended on that date.

The company has included in the notes to the financial statements an explicit and unreserved statement of compliance with International Financial Reporting Standards.

2. In the Directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

3. The remuneration disclosures included in pages 10 to 14 of the Directors’ Report (as part of the audited Remuneration Report), for the year ended 30 June 2011, comply with section 300A of the Corporations Act 2001.

4. The directors have been given the declarations by the Managing Director and Chief Financial Officer required by section 295A.

This declaration is made in accordance with a resolution of the Board of Directors and is signed for and on behalf of the Directors by:

Anthony Ractliffe A S T Yeo Non-Executive Chair Managing Director

Sydney, 29 September 2011

Directors’ Declaration

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Tranzact Financial Services Limited | Annual Report 2011 73

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74 Tranzact Financial Services Limited | Annual Report 2011

Shareholder InformationStatements Pursuant to Australian Stock Exchange Official Listing Rules as at 15 September 2011

Substantial ShareholdersSubstantial shareholders in the Company are set out below:

A. Ordinary Shares

Number Held Percentage

Gro-Aust Holdings Limited * 66,717,154 60.25%

* 7,417,324 shares are held through Asset Custodian Nominees Limited

B. Directors’ Shareholding

Total Interest Beneficial Interest

Relevant Interest

P L Harry AM 1,748,334 1,824,000 3,572,334

R L Rodgers 1,748,334 100,000 1,848,334

A S T Yeo 68,916,363 – 68,916,363

W A Ractliffe 70,454,363 – 70,454,363

C. Number of Shareholders

The Company had 435 shareholders with the following distribution of holdings:

Number of Shares Number of Shareholders

1 – 1,000 20

1,001 – 5,000 98

5,001 – 10,000 68

10,001 – 100,000 169

100,001 – over 80

Of the above, 39 shareholders did not have a marketable parcel.

D. Voting Rights

Subject to any rights or restrictions for the time being attached to any class or classes of shares:

1. At meeting of members or classes of members, each member entitled to vote may vote in person or by representative or by proxy or by attorney.

2. On a show of hands every person present who is, a member, or a representative or an attorney, or a proxy of a member has one vote.

3. On a show of hands a member, representative, attorney and a proxy has only one (1) vote, irrespective of the number of shareholders that person represents.

4. Where a member appoints two (2) proxies, neither proxy may vote for that member on a show of hands.

5. On a poll every member present in person or by proxy or by attorney or other duly authorised representative has one (1) vote for each fully paid share he/she holds, and a fraction of a vote for each partly paid share he/she holds. The fraction must be equivalent to the proportion which the amount paid (not credited) is of the total amounts paid and payable (excluding amounts credited). The amount paid in advance of a call must be ignored when calculating the proportion.

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Tranzact Financial Services Limited | Annual Report 2011 75

Twenty Largest Shareholdings as at 15 September 2011

Name Holding % Issued Capital1 Gro-Aust Holdings Limited 59,299,830 53.552 Asset Custodian Nominees Limited 7,714,524 6.973 Asset Custodian Nominees (Aust) Pty Ltd 3,286,334 2.974 London City Equities Limited 3,034,905 2.745 UBS Nominees Pty Ltd 2,041,000 1.846 Conclude Pty Limited 1,824,000 1.657 Contemplator Pty Ltd 1,250,000 1.138 Ruaminator Pty Ltd 1,250,000 1.139 Tuturau Nominees Ltd 1,197,138 1.0810 Cedars Properties Pty Ltd 1,000,000 0.9011 SM Roberts & CA Sheldon 999,370 0.9012 Mary Christopher 922,884 0.8313 Dalbow Superannuation Pty Limited 814,109 0.7414 Central Highlands Financial Services Pty Ltd 803,680 0.7315 Cravat Holdings Pty Ltd 800,000 0.7216 Russellan Pty Ltd 734,825 0.6617 Forsyth Barr Custodians Ltd 731,945 0.6618 Storey Enterprises Pty Ltd 712,820 0.6419 Howard Securities Pty Ltd 700,000 0.6320 Keiser Shipping & Transport Pty Ltd 600,000 0.54

89,717,364 81.02

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76 Tranzact Financial Services Limited | Annual Report 2011

Corporate Directory Tranzact Financial Services Limited is a listed Public Company incorporated and domiciled in Australia.

Registered Office Tranzact Financial Services LimitedABN 84 089 997 731Level 5, 241 Castlereagh Street SYDNEY NSW 2000 Tel 02 9236 5600Fax 02 9236 5699

Officers of the CompanyW Anthony Ractliffe Non-Executive ChairPhillip L Harry AM Non-Executive DirectorAllan S T Yeo Managing Director Richard L Rodgers Non-Executive Director and Company Secretary

AuditorBDO Level 192 Market StreetSYDNEY NSW 2000Tel 02 9286 5555

Share RegistryComputershare Investor Services Pty Ltd ABN 48 078 279 277 Level 3, 60 Carrington StreetSYDNEY NSW 2000 Tel 02 8234 5000Australia OnlyToll Free1300 850 505

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Registered Office:

Level 5, 241 Castlereagh Street, Sydney, NSW 2000

Postal Address:

PO Box 20314, World Square, Sydney, NSW 2002 Phone: +61 2 9236 5600 Fax: +61 2 9236 5699

www.tranzact.com.au

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